BLBG: Pound Falls Against Dollar as Stocks Slide on Recovery Concern
By Anna Rascouet
Oct. 2 (Bloomberg) -- The pound fell against the dollar, headed for a third straight weekly drop, as U.K. stocks slid amid signs the worst of the recession has yet to pass.
The British currency also weakened against the euro after Nationwide Building Society revised its increase in house prices for August to 1.4 percent, from 1.6 percent. Investors should sell the pound against the dollar amid declines in stocks, UBS AG, the world’s second-biggest foreign-exchange trader said today. The FTSE 100 Index of U.K. shares fell 0.9 percent, a fourth straight drop, the longest losing streak since April.
“Recoveries are never one way and the market has become a bit jittery,” said Lauren Rosborough, a senior currency strategist at Westpac Banking Corp. in London. The pound-dollar rate “has been hurt quite strongly on the back of that.”
The pound fell to $1.5884 as of 11:10 a.m. in London, from $1.5955 yesterday, bringing its decline this week to 0.5 percent. It traded at 91.58 pence per euro, from 91.17 pence.
Sterling dropped 6.9 percent against the euro in the third quarter and 2.9 percent against the dollar as the Bank of England increased its so-called quantitative-easing policy to help haul the economy out of its recession. It gained more than 12 percent versus the currencies in the first half.
Investors should sell the pound with a target of $1.52 and ending the bet should it reach $1.6130, UBS said.
‘Tactical Trade’
“This is a short-term tactical trade on the view that further weakness in global equities near term will prompt risk- averse investors to buy up safe-haven U.S. Treasuries,” Gareth Berry, a currency analyst at UBS in London, wrote in a report.
Sterling still rose 0.6 percent against the euro this week, buoyed after European Central Bank President Jean-Claude Trichet said yesterday foreign-exchange moves were having “adverse” effects, signaling concern about the strength of the 16-nation currency.
U.K. government bonds rose, with the yield on the 10-year gilt dropping as much as 6 basis points to 3.43 percent, the lowest level since May 15. The 4.5 percent security due March 2019 rose 0.30, or 3 pounds per 1,000-pound face amount, to 108.40, set for a second weekly gain.
The two-year note yield was little changed at 0.76 percent, having earlier dropped to 0.718 percent, within half a basis point of the lowest level since at least January 1992, when Bloomberg began collecting the data.
U.K. house prices rose an average 0.9 percent in September, a fifth monthly advance, as the lack of homes for sale helped erase losses of the past year, according to Nationwide. The median forecast in a Bloomberg survey of 15 analysts was for a gain of 0.7 percent.
