The pound fell to its lowest level in five weeks versus the dollar on concern efforts to pull the U.K. out of its first double-dip recession since the 1970s will be hampered by the euro-area crisis and declining global growth.
Sterling slid for a third day against the U.S. currency after PricewaterhouseCoopers LLP said British businesses should prepare for the possibility of a “prolonged recession” if Europe’s sovereign-debt turmoil worsens. Ten-year yields fell to the least since June 1 after the U.K. sold bonds maturing in 2022 at a record-low yield.
“Given the situation in Europe, the U.K. recession may not end until next year, and that is an optimistic scenario,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The pound will weaken alongside the euro, while the dollar is strengthening broadly as risk aversion is creeping back into the market.”
The pound fell 0.5 percent to $1.5417 at 4.30 p.m. London time after weakening to $1.5394, the lowest level since June 6. The U.K. currency fell 0.2 percent to 79.06 pence per euro. It appreciated to 78.71 yesterday, the strongest since Nov. 3, 2008.
The pound may find support at last month’s low of $1.5269 and this year’s low of $1.5235, and later $1.5192, the 61.8 percent Fibonacci retracement of its rally between May 2010 and April 2011, according to data compiled by Bloomberg.
Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. Support refers to an area on a price graph where analysts anticipate orders to buy a security.
While the U.K. economy will probably show zero growth this year, risks “are weighted to the downside,” PWC, the London-based accountancy firm, said in a report today. Britain’s fiscal watchdog said separately the nation’s public finances are “clearly unsustainable” and need a tax increase or spending cut to bring debt down.
Spanish and Italian government bonds declined today and gains in German two-year notes pushed the yield to an all-time lows.
Sterling has appreciated 3.8 percent in the past year, the third-best performer after the dollar and the yen among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
Britain’s Debt Management Office sold 3.5 billion pounds of 10-year government bonds to yield 1.72 percent, it said today.
The 10-year gilt yield fell three basis points, or 0.03 percentage point, to 1.54 percent. It dropped to 1.505 percent, the lowest since June 1, when it reached 1.439 percent, the least on record. The 4 percent bond due March 2022 rose 0.28, or 2.80 pounds per 1,000-pound face amount, to 122.02.
“The record-low yield shows there is still a haven in the U.K. bond market,” said Elisabeth Afseth, a fixed-income analyst at Investec Bank Plc in London. “The European crisis is an ongoing feature of that and it will be there for a long time.”
U.K. debt has returned 3.2 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds have gained 3.8 percent as U.S. Treasuries handed investors a profit of 2.5 percent.
The U.K. Treasury and Bank of England will announce at 11 a.m. tomorrow details of their so-called Funding for Lending program to boost credit among the nation’s lenders, the central bank said in an e-mailed statement.