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Pound Weakens as Report Says U.K. House Prices Decline Most in Six Months
The pound weakened for a third day against the euro as a report showed U.K. house prices slid the most in six months in August, stoking speculation that the economic recovery may falter.
The U.K. currency fell versus all of its 16 most actively traded peers as data from the Nationwide Building Society, Britain’s biggest customer-owned lender, showed the average home price dropped 0.9 percent from July. Another report showed an index of British construction fell last month to the lowest since February. The U.K. sold 3.75 billion pounds ($5.8 billion) of gilts maturing in 2014.
“The U.K. recovery may have run its course,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “This leaves sterling very vulnerable. We continue to expect sterling to come under pressure.”
The pound depreciated 0.5 percent to 83.29 pence per euro as of 4:30 p.m. in London. It reached 83.48 pence per euro earlier, the weakest level since Aug. 10. The U.K. currency declined 0.4 percent to $1.5401. Sterling fell to $1.5327 on Aug. 31, the lowest level since July 23.
The pound may weaken to 85 pence per euro and $1.5125 over the next week, Stannard said.
The construction gauge, based on a survey of purchasing managers at building companies, fell to 52.1 in August from 54.1 in July, Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply said today. That’s below the median forecast of 53.2 in a Bloomberg survey.
European Forecast
The pound weakened to its lowest level against the 16- nation single currency in more than three weeks as the European Central Bank raised its economic forecasts and President Jean- Claude Trichet said a double-dip recession in the euro region is “not on the cards.”
Trichet was speaking at a press conference in Frankfurt today after the ECB left its main refinancing rate unchanged at a record low 1 percent.
While the U.K. economy grew in the second quarter at the fastest pace since 2001, there are signs the recovery is moderating. Manufacturing grew at the slowest pace in nine months in August, a separate report by Markit Economics and CIPS showed yesterday.
Government bonds fell, pushing the 10-year gilt yield three basis points higher to 2.96 percent. The two-year yield also gained three basis points, to 0.72 percent.
The Debt Management Office’s sale of the 5 percent gilt due 2014 attracted reduced demand. Investors bid for 1.69 times the amount of bonds on offer, down from a so-called bid-to-cover ratio of 2.28 at the previous auction of the same securities held June 17.
The yield tail, the difference between the average accepted yield and the highest yield, widened to 0.7 basis point from 0.2 basis point at the June auction.
To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net
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