BLBG:Pound Falls Versus Euro After Moody’s Cuts U.K. Growth Forecast
The pound fell for the first time in four days against the euro after Moody’s Investors Service lowered its forecast for U.K. economic growth.
Sterling declined versus all except one of its 16 major counterparts as an industry report showed U.K. consumer confidence stalled this month as the recession deepened. The Bank of England will keep its asset-purchase program on hold and leave interest rates unchanged on Aug. 2, according to a Bloomberg survey of economists. U.K. government bonds rose as investors sought safer assets.
“The fundamentals are negative for the pound and we see it weakening further,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The longer the period of economic stagnation goes on, the greater emphasis there is on the government to change its fiscal program.”
The pound dropped 0.3 percent to 78.27 pence per euro at 11:40 a.m. London time after falling to 78.74 pence on July 27, the weakest level since July 17. The U.K. currency depreciated 0.1 percent to $1.5691.
Today’s decline wiped out sterling’s gain this month. The pound is little changed in July, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar strengthened 0.1 percent and the euro dropped 3.2 percent.
‘Rising Challenges’
“Moody’s sees rising challenges in achieving debt reduction within the timeframe that has been laid out by the government,” the rating company said in a credit opinion in London. Still, it “believes that the U.K. government’s response to negative developments late last year indicates it commitment to restoring a sustainable debt position.”
An index of consumer confidence stayed at minus 29, London- based research group GfK NOP Ltd. said in an e-mailed report. The gauge has been in a range of minus 29 to minus 31 for the past seven months. A measure of Britons’ outlook for the economy over the next 12 months rose 1 point.
The 10-year gilt yield fell five basis points, or 0.05 percentage point, to 1.49 percent after dropping to a record 1.407 percent on July 23. The 4 percent bond due March 2022 rose 0.49, or 4.90 pounds per 1,000-pound face amount, to 122.365.
The pound is likely to find so-called support at around 79.09 pence per euro, the 38.2 percent retracement of its rally from June to July, said Karen Jones, head of fixed-income, currency and commodity technical analysis at Commerzbank AG in London, citing Fibonacci theory.
Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. Support refers to an area where buy order may be clustered.
The Bank of England will buy 1 billion pounds of longer- maturity bonds today as part of its asset-purchase program. The Debt Management Office will also provide the details of a bond sale planned for Aug. 9.
U.K. government bonds have returned 1.5 percent this month, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 1.4 percent, and Treasuries rose 1 percent.
To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
