The pound weakened after an industry report showed U.K. mortgage approvals fell to their lowest level in more than a year, supporting the case for the central bank to resume stimulus measures.
Sterling dropped versus all its 16 major peers as Barclays Plc was fined 290 million pounds ($451 million), the largest penalties ever imposed by regulators in the U.S. and U.K., after admitting it submitted false interbank offered rates. Bank of England Governor Mervyn King told lawmakers yesterday he voted for more so-called quantitative easing this month because of a deteriorating global economic outlook. U.K. government bonds were little changed.
“QE is quite likely at the next meeting in July,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. The pound will probably move “a little bit lower in the next couple of weeks” against the dollar, he said.
The U.K. currency fell 0.6 percent to $1.5554 at 5:04 p.m. London time, extending this quarter’s decline to 2.8 percent. The pound weakened 0.3 percent to 80.12 pence per euro after appreciating to 79.85 yesterday, the strongest since May 30.
The number of loans granted to buy homes dropped 5.8 percent to 30,238 last month, the least since April 2011, the British Bankers’ Association said. Britons repaid more mortgage debt than they borrowed in May for the first time in at least 15 years as consumers sought to improve their finances, the Association said.
Britain’s Financial Services Authority said derivatives traders requested the false submissions in the Libor and Euribor setting process, as they were “motivated by profit and sought to benefit Barclays’ trading positions.”
King was defeated in a push to expand the bond-purchase program by 50 billion pounds to 375 billion pounds at this month’s Bank of England policy meeting. The Monetary Policy Committee voted 5-4 to keep its target unchanged.
Nomura Holdings Inc. yesterday brought forward its forecast for when the central bank will extend the plan, predicting an increase of 75 billion pounds to 400 billion pounds next month.
Sterling has weakened 1.5 percent in the past month, the worst performer of the 10 developed-nation currencies tracked by according to Bloomberg Correlation-Weighted Indexes. The dollar slid 0.6 percent, and the euro fell 1.2 percent in the period.
The benchmark 10-year gilt yielded 1.69 percent. The 4 percent bond due in March 2022 traded at 120.59.
Investors demand an additional yield of 140 basis points to hold the 10-year bonds over two-year gilts. The spread may struggle to narrow beyond the June 8 low of 136 basis points, according to data compiled by Bloomberg.
U.K. debt has returned 2.7 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 2.6 percent, and U.S. Treasuries rose 1.9 percent.