Pound Drops to 14-Month Low as House Prices Add to Outlook Gloom

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Monetary Policy Committee member Ben Broadbent
Sterling slid to the least in three weeks against the euro after Monetary Policy Committee member Ben Broadbent said in a BBC radio interview that disinflationary trends in the U.K. economy “will remain in place for a while.” Photographer: Jason Alden/Bloomberg

The pound fell to the lowest in more than a year versus the dollar as the U.K.’s property slowdown deepened concern that growth has cooled, prompting investors to delay bets on when the Bank of England will raise interest rates.

Sterling slid to the least in three weeks against the euro after Monetary Policy Committee member Ben Broadbent said in a BBC radio interview that disinflationary trends in the U.K. economy “will remain in place for a while.” Investors now are betting the central bank will hold rates until at least October next year. U.K. government bonds rose as the nation sold 3 billion pounds ($4.72 billion) of 10-year gilts.

“There are some signs of economic deceleration and external challenges, particularly from the euro zone, which may add downward pressure to the pound in the near term,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.

The pound dropped 0.3 percent to $1.5724 at 4:53 p.m. London time after falling to $1.5723, the least since Sept. 11, 2013. It depreciated 0.6 percent to 79.32 pence after reaching 79.36 pence, the weakest since Oct. 21.

Sterling’s decline trimmed gains in the past 12 months to 5.3 percent, still the best performer after the dollar, which rose 7.8 percent in the period, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro slid 1.1 percent.

CIBC’s Stretch said he is “still upbeat about the economy overall and we see a setback in sterling as an opportunity to buy.”

London Prices

The Royal Institution of Chartered Surveyors gauge of London house prices fell last month to the lowest since October 2010, putting the British capital at the forefront of a property slowdown in the wake of new rules on lending.

While the U.K.’s economy remains the fastest growing in the Group of Seven nations, recent data suggest it may have lost momentum. Industrial production expanded at a slower annual pace in September and the same month retail sales fell more than economists estimated. The BOE, which held interest rates at a record-low 0.5 percent on Nov. 6, yesterday cut its growth forecasts for the U.K. and said inflation will slow in coming months.

The path of BOE rate increases “will be gentler” and rise to a lower level than before the financial crisis, Broadbent told the BBC.

Investors Bearish

The implied yield on short-sterling futures contracts expiring in December 2015 fell two basis points to 1.02 percent after declining eight basis points yesterday.

Forward contracts based on the sterling overnight interbank average, or Sonia, show traders have delayed bets for a 25 basis-point increase in the U.K. benchmark rate to beyond October from February as recently as three months ago.

Derivatives showed investors were the most bearish in almost two months about the pound. The premium for three-month options granting the right to sell the currency against the dollar relative to those giving the right to buy climbed to 0.94 percentage point today, the most since Sept. 19, according to risk-reversal rates compiled by Bloomberg.

The 10-year gilt yield dropped one basis point, or 0.01 percentage point, to 2.18 percent. The 2.75 percent bond due in September 2024 rose 0.11, or 1.10 pounds per 1,000-pound face amount, to 105.015.

The Debt Management Office sold the benchmark gilts at an average yield of 2.205 percent, compared with 2.149 percent at the previous sale last month, which was the lowest since April 2013.

Gilts returned 9.7 percent this year through yesterday, according to Bloomberg World Bond Indexes, beating German securities and U.S. Treasuries, which earned 8.2 percent and 4.8 percent, respectively.

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