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UK’s pound weakens as consumer confidence declines

The pound weakened against the dollar and slid to within a penny of a three-week low versus the euro as a report showed U.K. consumer sentiment fell in August, adding to signs Britain’s economic recovery is faltering.

Sterling depreciated for a second day against the yen. An index of sentiment slipped 1 point to minus 31 from July, GfK NOP Ltd., a London-based research group said in an e-mailed report today. The median prediction of 21 economists in a Bloomberg survey was for a drop to minus 33. Business confidence in the economic outlook plunged this month to its lowest level since 2009, Lloyds Bank Corporate Markets said yesterday.

“The U.K. data has been extremely disappointing,” said John Hydeskov, chief analyst at Danske Bank A/S in London. “We should just get used to sterling trading at weak levels. Current levels make sense at this environment, as sterling has no support from monetary policy. I’m not really a big fan.”

The pound slid 0.2 percent to $1.6272 at 10:24 a.m. in London, adding to yesterday’s 0.7 percent decline. It was 0.1 percent weaker against the euro, at 88.69 pence, extending its drop since July 29 to 1.2 percent. It depreciated to 88.80 pence on Aug. 29, the weakest since Aug. 10. Britain’s currency bought 124.65 yen from 125.08 yesterday.

Sterling may depreciate to 94 pence against the 17-nation euro over 12 months, Hydeskov said. The median of analysts’ forecasts compiled by Bloomberg News is for the pound to trade at 88 pence through the first quarter of 2012 and strengthen to 86 pence by the end of June.

U .K. government bonds fell, with the yield on the 10-year gilt rising two basis points to 2.53 percent. The 3.75 percent note due September 2020 fell 0.205, or 2.05 pounds per 1,000- pound face amount, to 109.81. The two-year yields were also two basis points higher, at 0.57 percent.

Gilts have handed investors an 8.3 percent return in 2011, compared with 5.7 percent from German debt and 7.5 percent from U.S. Treasuries, according to the European Federation of Financial Analysts Societies.

Britain plans to sell 3 billion pounds of bonds maturing in 2021 tomorrow.

U.K. bonds, which attracted buyers as a haven from Europe’s sovereign-debt crisis, have gained this year as investors reduced bets on higher interest rates from the Bank of England.

Nationwide Building Society will probably say tomorrow that house prices stagnated this month, after increasing 0.2 percent in July, according to the median estimate of nine economists in a Bloomberg News survey.

Source : Lukanyo Mnyanda – Bloomberg  

31 August 2011
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