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 per cent, the same as in November, Hometrack Ltd. said today. Values are forecast to fall 1 per cent next year after a 0.3 per cent decline in 2012, the London-based property research group said. The Bank of England decided last month to halt its £375-billion ($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 UK 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 per cent 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 December 14.
Standard & Poor’s lowered its outlook on Britain’s AAA credit rating to negative from stable on December 13, citing weak economic growth and a worsening debt profile.
The pound has gained 1.4 per cent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro declined 0.8 per cent and the dollar fell three per cent.
The 10-year gilt yield rose less than one basis point, or 0.01 percentage point, to 1.89 per cent. The 1.75 per cent bond due in September 2022 fell 0.045, or 45 pence per £1,000 face amount, to 98.765.
The rate dropped as much as seven basis points on December 21, the biggest decline since November 28. The two- year gilt yielded 0.34 per cent.
The rate dropped as much as seven basis points on December 21, the biggest decline since November 28. The two- year gilt yielded 0.34 per cent.
The gilt market was scheduled to close at 12:15 pm in London and will resume trading on December 27.
Gilts returned 2.2 per cent this year through December 21, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 4 per cent and Treasuries earned 2 per cent.
