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Pound Falls to Three-Week Low Versus Euro Before Rate Decisions

The pound fell to the lowest in almost three weeks against the euro on bets the Bank of England will be less aggressive than European policy makers in adopting measures to stimulate the economy.

Sterling snapped a three-day drop versus the dollar and gilts were little changed. The Monetary Policy Committee will keep its bond-buying program at 375 billion pounds ($584 billion) and leave interest rates at a record-low 0.5 percent, according to Bloomberg News surveys. European Central Bank President Mario Draghi said last week that he will do whatever is needed to preserve the 17-nation currency.

“The market is buying into the idea the ECB will deliver, which is helping euro against sterling,” said Tom Levinson, a foreign-exchange strategist at ING Groep NV in London. “It would be a major surprise if the Bank of England announced anything today.”

The pound fell 0.3 percent to 78.92 pence per euro at 11:37 a.m. London time, after depreciating to 79.07 pence, the weakest level since July 13. The U.K. currency advanced 0.1 percent to $1.5551, after dropping to $1.5523, the least since July 26.

Sterling has depreciated 1.7 percent in the past three months, the fourth-worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes amid the deteriorating economy. The dollar gained 2.9 percent in the period, while the euro slid 4.8 percent.

The yield on the 10-year gilt was at 1.51 percent after falling to a record 1.407 percent on July 23. The 4 percent bond maturing in March 2022 traded at 122.195.

Expanded Toolkit

The ECB may announce a plan today to tackle the debt crisis that’s hurting global growth, even as it keeps its main rate at 0.75 percent, also an all-time low, according to another survey.

The Bank of England has expanded its toolkit with its Funding for Lending Scheme to unclog bank credit and help pull the country out of a double-dip recession. The worsening outlook prompted banks including Morgan Stanley and Barclays Plc to revise forecasts this week and predict more U.K. stimulus later this year.

The British economy shrank the most since 2009 in the second quarter, the Office for National Statistics said July 25. Manufacturing contracted in June at the fastest rate in 2 1/2 years, data yesterday from Markit Economics showed.

Gilt Returns

Investors brought forward bets the Bank of England will lower rates by October, according to Sonia forward contracts. Policy makers will cut their benchmark rate by 25 basis points to 0.25 percent by its Oct. 4 meeting, data from Tullett Prebon Plc shows. Earlier today, traders were betting on a reduction in November, the data showed.

U.K. gilts returned 3.9 percent this year, after surging 17 percent in 2011 as investors sought a haven from the euro- region’s debt crisis, indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies showed. German bunds gained 3.6 percent in 2012, with U.S. Treasuries earning 2.6 percent.

The Bank of England increased its asset-purchase program by 50 billion pounds at its meeting on July 5.

The 10-year gilt yield declined 7 basis points to 1.66 percent and the pound fell 0.4 percent to $1.5525 on the day. It strengthened 0.7 percent versus the euro.

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

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