Pound Heads for Weekly Decline Versus Dollar on Investor Risk Aversion

The pound posted its fourth straight week of declines against the dollar as concern over public finances in Britain and nations across Europe prompted investors to seek safer assets.

Sterling, which reached a 13-month low against the U.S. currency yesterday, has fallen 0.6 percent against the dollar and depreciated 2.3 percent against the euro this week. The Office of National Statistics said today that U.K. public-sector net borrowing was 10 billion pounds ($14.4 billion) in April. Though that was below the 10.9 billion-pound median forecast of 15 economists in a Bloomberg survey, it’s still the biggest shortfall on record for the month of April.

“There’s a lot of uncertainty, mainly stemming from concern over sovereign debt,” said Lee Hardman, a foreign- exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The U.K. is at the epicenter of those concerns, given the dire fiscal position. The pound is still very vulnerable to the downside.”

Sterling erased earlier losses to advance 0.5 percent to $1.4447 at 4:21 p.m. in London after dropping 0.3 percent to $1.4318. It slid to $1.4231 yesterday, its lowest level since March 30, 2009. The U.K. currency was little changed at 87 pence per euro, having weakened earlier to 87.74 pence.

Spending Cuts

Britain’s new finance minister, George Osborne, has pledged to slash spending in an emergency budget to avoid an investor revolt and bond-market rout like the one that precipitated Greece’s fiscal crisis. Osborne has ordered government departments to find 6 billion pounds of savings this year, and will set out further reductions on June 22.

Concern the U.K. will struggle to reduce its deficit, which at more than 11 percent of gross domestic product is the biggest in the Group of Seven nations, has helped drive the pound 4 percent lower this year, according to Bloomberg Correlation- Weighted Indexes.

Conservative Prime Minister David Cameron and his Liberal Democrat deputy Nick Clegg yesterday said they were united over the need for immediate action to reduce the deficit.

Separate reports today showed U.K. mortgage approvals fell last month to the lowest in almost a year, while money supply held steady.

Home Loans

The number of loans for house purchase granted fell to 47,000 in April from 51,000 in March as tighter credit conditions slowed demand from first-time buyers, according to a sample from the Bank of England’s panel of six major lenders released today. That’s the lowest since May 2009.

A Bank of England report showed that the M4 measure of money supply was unchanged in April from the previous month. From a year earlier, M4 growth slowed to 3.3 percent from 3.5 percent, the weakest since September 1999.

Ten-year government bonds rose, with the 10-year gilt yield falling two basis points to 3.55 percent. It slipped earlier to 3.48 percent, the lowest since Nov. 27, according to Bloomberg generic data. The two-year yield gained two basis points to 0.87 percent. It fell to 0.80 percent yesterday, the lowest since Nov. 11.

Gilts have returned about 4.7 percent this year, compared with gains of 6.1 percent for German government bonds and 4.2 percent for U.S. Treasuries, according to indexes compiled by Bank of America Merrill Lynch.

The U.K. government plans to sell index-linked gilts maturing in 2050 through banks next week. The Debt Management Office, which handles bond sales for the U.K. Treasury, said March 24 it plans to sell 29.2 billion pounds of gilts in up to 10 so-called syndicated deals this fiscal year.

Britain plans to sell 187.3 billion pounds of gilts in the current fiscal year ending March 31, 2011. The U.K. sold a record 227.6 billion pounds of government bonds last financial year.

To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net

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