Pound Declines After Worst Month for Housing Market in 15 Years


The pound fell to near a 10-month low against the dollar after an industry survey showed December was the worst month for the housing market since the aftermath of Britain's recession in 1992.

The pound was also close to a record low versus the euro as traders added to bets the Bank of England will cut its main lending rate by at least a quarter-percentage point from 5.5 percent next month, derivatives prices showed. The number of real-estate agents and surveyors saying house values fell exceeded those reporting gains by 49.1 percentage points, the Royal Institution of Chartered Surveyors said today.

The pound weakened to $1.9567 by 11:32 a.m. in London, from $1.9627 yesterday. It slipped to $1.9484 on Jan. 11, the lowest level since March 20, 2007.

The U.K. currency also declined to 75.50 pence per euro, from 75.43 yesterday, when it dropped to a record of 76.14.

Britain's currency weakened to a 1 1/2-year low against the yen, slipping for a fifth day to 207.85, from 209.59 yesterday.

It also slumped to 2.1356 Swiss francs, the lowest since June 2003, from 2.1449. The yen and the franc are popular currencies for funding carry trades because of their low interest rates. Japan's main rate is 0.5 percent and Switzerland's is 2.75 percent.

Carry traders borrow cheaply and convert the proceeds to a currency, such as the pound, they can lend out for a higher return. They earn the spread between the borrowing and lending rates, taking the risk currency moves will wipe out their profit.

The pound has weakened 6 percent against the yen and 5 percent versus the franc this year amid the fallout from the collapse of the U.S. subprime-mortgage market.

The implied yields on U.K. interest-rate futures contracts dropped as traders wagered borrowing costs will fall this year.


TradingEconomics.com, Bloomberg
1/16/2008 7:20:54 AM