The pound fell against the dollar on speculation the
squeeze on short-term bank lending will hurt the economy
and reduce demand for higher-yielding assets.
The pound also traded near the lowest since January 2005
versus the euro before a report tomorrow that may show
house- price growth slowed this month, according to
economists surveyed by Bloomberg. The U.K. currency pared
losses after the Bank of England said its three-month
auction of emergency cash for the money markets today
didn't receive a single bid from banks.
``We're pretty bearish on sterling,'' said Russell Jones,
London-based head of global fixed-income and currency
research at RBC Capital Markets, the investment-banking arm
of Canada's biggest lender by assets. ``The trigger is
going to be the fact that the Bank of England is the
central bank most likely to follow the Fed's example'' and
pare borrowing costs.
The pound fell to $2.0177 by 2 p.m. in London, after
earlier declining as far as $2.0106 and from $2.0186
yesterday. It was little changed at 69.99 per euro, after
earlier sliding to 70.28 pence.
The absence of any bids for the 10 billion pounds ($20
billion) offered by the Bank of England stoked speculation
strains in the money market aren't as bad as some imagined,
buoying the pound. The central bank acknowledged that at a
minimum 1 percentage point above the central bank's main
lending rate of 5.75 percent, the funds available at
today's auction were ``expensive.''
`Reputation' Risk
Banks may also have turned down the emergency funding for
fear their identities would be revealed.
``There was no incentive for the banks'' to bid for money
today ``from a reputation perspective,'' said Harvinder
Sian, a fixed-income strategist at ABN Amro Holding NV in
London. ``They had an incentive not to, simply because if
that information was released or ever got out, it could
have created rumors'' about their creditworthiness.
Nationwide Building Society, the U.K.'s fourth-largest
mortgage lender, will tomorrow probably say the cost of a
home rose 0.3 percent this month, from 0.6 percent in
August.
``The economy is going to weaken because of the decline in
global property prices,'' said Hans Guenter Redeker, head
of currency strategy at BNP Paribas SA in London.
``Sterling has further downward potential.'' Investors
should ``prepare'' for a decline to 75 pence to the euro,
he said.
The pound stayed lower after a government report today
showed economic growth held at 0.8 percent in the second
quarter.
Gilts fell, with the yield on the benchmark 10-year bond
rising 2 basis points to 5.04 percent.
The implied rate on the December interest-rate futures
contract fell 4 basis point to 6.14 percent, suggesting the
Bank of England may follow the Federal Reserve's Sept. 18
rate cut to spur the economy.
The contract settles to the three-month London interbank
offered rate for the pound, which has averaged about 16
basis points more than the benchmark rate over the past
decade.
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