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Pound Drops to 8-Month Low Versus Euro as U.K. House Prices Fall

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Dec. 24 (Bloomberg) -- The pound weakened to the lowest level in nearly eight months against the euro as a report showed house prices fell for a sixth month in December, strengthening the case for the Bank of England to expand its stimulus.

Sterling dropped to the lowest level in more than a week versus the dollar. Home prices in England and Wales slipped 0.1 percent, the same as in November, Hometrack Ltd. said today. Values are forecast to fall 1 percent next year after a 0.3 percent decline in 2012, the London-based property research group said. The Bank of England decided last month to halt its 375-billion pound ($606 billion) asset-purchase program, known as quantitative easing, designed to boost the economy.

“The move lower in the pound against the euro is a continuation of concern that the U.K. could lose its AAA rating in 2013 and the step up in austerity will keep the economy weak and inspire more quantitative easing from the Bank of England,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The weak house-price data today doesn’t argue against those concerns.”

The pound depreciated 0.2 percent to 81.74 pence per euro as of 1:04 p.m. in London, after trading at 81.81 pence, the weakest level since May 1. Sterling was little changed at $1.6171, after falling to $1.6143, the lowest since Dec. 14.

Standard & Poor’s lowered its outlook on Britain’s AAA credit rating to negative from stable on Dec. 13, citing weak economic growth and a worsening debt profile.

Currency Indexes

The pound has gained 1.4 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro declined 0.8 percent and the dollar fell 3 percent.

The 10-year gilt yield rose less than one basis point, or 0.01 percentage point, to 1.89 percent. The 1.75 percent bond due in September 2022 fell 0.045, or 45 pence per 1,000-pound face amount, to 98.765. The rate dropped as much as seven basis points on Dec. 21, the biggest decline since Nov. 28. The two-year gilt yielded 0.34 percent.

The gilt market was scheduled to close at 12:15 p.m. in London and will resume trading on Dec. 27.

Gilts returned 2.2 percent this year through Dec. 21, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 4 percent and Treasuries earned 2 percent.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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