British Pound Near Almost Four-Week Low Versus Dollar on Growth Concern
Aug. 23 (Bloomberg) -- Guy Spier, chief executive officer of Aquamarine Capital LLC, discusses the outlook for mergers and acquisitions. He talks with Mark Barton on Bloomberg Television's "Start Up." (Source: Bloomberg)
The pound was near the lowest level against the dollar in almost four weeks as a quarterly gauge of business confidence weakened, stoking concern the economic recovery may be slowing.
Sterling also declined against the yen as a U.K. index of consumer finances stayed close to the lowest level in almost a year in August. The pound earlier rose as much as 0.6 percent versus the dollar on optimism that foreign bids for British companies will boost demand for the U.K. currency.
“We don’t think the market has priced in the full effects of fiscal tightening,” said Geoffrey Yu, a currency strategist at UBS AG in London. “Markets need to be more cautious.”
The pound traded little changed at $1.5534 as of 5:08 p.m. in London, and it fell to $1.5464 on Aug. 20, the lowest level since July 27. Sterling fell 0.5 percent to 132.28 yen, while it climbed 0.3 percent to 81.62 pence per euro.
The index of business confidence fell 4 points in the third quarter to 21.5, Grant Thornton and the Institute of Chartered Accountancy in England and Wales said, citing a survey of 1,000 members. The measure of finances, based on a survey of 2,000 households, was at 37.9, little changed from July’s reading of 37.2, Markit Economics Ltd. and YouGov Plc said in an e-mailed statement today. Readings below 50 indicate deterioration.
Korea National Oil Corp. last week made a hostile 1.9 billion-pound ($2.9 billion) bid for U.K. explorer Dana Petroleum Plc. There will be a “flood” of mergers and acquisitions in the next 18 months, said Guy Spier, chief executive officer of Aquamarine Capital LLC.
‘U.K. Specific’
The strength of the pound was “U.K.-specific, as there’s talk of mergers and acquisitions,” said Ian Stannard, a currency strategist at BNP Paribas SA in London. “It will go against the backdrop of rather poor global economic data.”
The 10-year gilt yield was little changed at 2.97 percent, as was the two-year note yield at 0.64 percent. It slid to 0.611 percent at the end of last week, the lowest since Bloomberg began compiling the data in 1992.
U.K. bonds have returned 8.8 percent this year, compared with a 9.2 percent gain from German debt and 8.2 percent from Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
The British pound’s biggest rally in 14 months is in jeopardy as Prime Minister David Cameron’s budget cuts begin to curb economic growth. Chancellor of the Exchequer George Osborne has pledged to almost erase the deficit by 2015 via spending cuts worth 30 billion pounds annually and measures including a public-sector wage freeze, firings and tax increases. Details of spending cuts will be announced on Oct. 20.
‘Story Has Changed’
Foreign-exchange forecasters are the most pessimistic on the pound since May 2009, when Standard & Poor’s said the U.K. was at risk of losing its AAA credit rating, according to data compiled by Bloomberg. Bears in a Bloomberg survey of strategists outnumber bulls 29 to 12, while TD Securities in Toronto, the most-accurate forecaster in the six quarters ended June 30, has the lowest estimate, predicting sterling will depreciate 15 percent versus the dollar by year-end.
“The story has changed,” said Richard Benson, an executive director at Millennium Asset Management in London who oversees $14 billion and correctly predicted in the first half of 2009 the pound would gain versus the euro. “The prospects for growth look quite soft and fiscal retrenchment is about to be undertaken,” said Benson, who is betting against sterling as the U.K. expansion lags behind Germany.
Investors drove the pound 12 percent higher against the euro from its low this year on March 1 on speculation Cameron’s austerity measures would shrink the nation’s 11 percent deficit and preserve its top debt rating. It’s starting to retreat as the planned cuts risk undermining the recovery.
Manufacturing Slows
Growth in Europe’s services and manufacturing industries weakened more than economists forecast in August, signaling the pace of the recovery has peaked.
A composite index based on a survey of euro-area purchasing managers in both industries declined to 56.1 from 56.7 in July, London-based Markit Economics said today. Economists expected a reading of 56.3, according to the median of 14 forecasts in a Bloomberg News survey. A reading above 50 indicates expansion.
“The euro is going to continue to be bedeviled by structural negatives,” Jeremy Stretch, global head of foreign- exchange strategy at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, said in a telephone interview. “Euro- sterling will be trading lower and we could well see it sub-80 pence by the end of the year.”
To contact the reporters on this story: Stephen Morris in London smorris39@bloomberg.net; Anchalee Worrachate in London at +44- aworrachate@bloomberg.net
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