Pound Snaps Three-Day Decline Versus Euro, Falls Against Dollar

Aug. 5 (Bloomberg) -- The pound snapped three days of declines against the euro and dropped versus the dollar.

The British currency strengthened to 79.37 pence per euro as of 8:05 a.m. in London, from 79.39 yesterday. It slid to $1.956 from $1.962.

The pound fell to its lowest level in a week against the euro yesterday and near its weakest in a month against the dollar after a report showed the U.K. construction industry, which accounts for 6 percent of the economy, shrank at the fastest pace in 11 years.


Traders scaled back bets the Bank of England will lift its benchmark interest rate, with the implied yield on the December short-sterling futures contract dropping 6 basis points to 5.73 percent. The nation's key rate is at 5 percent.

Policy makers left the rate unchanged at their July 10 meeting after lowering it three times since November in a bid to stave off a recession in the face of accelerating inflation. They will keep it on hold again on Aug. 7, according to all 60 economists surveyed by Bloomberg.

U.K. 10-year government bonds opened lower, with the yield rising 2 basis points to 4.82 percent. The 5 percent security due March 2018 dropped 0.07, or 70 pence per 1,000-pound ($1,959) face amount, to 101.7. The yield on the two-year note slipped 2 basis points to 4.75 percent. Bond yields move inversely to prices.

The pound will weaken to $1.90 and to 80 pence per euro by year-end, according to the median forecast of analysts and strategists surveyed by Bloomberg. The 10-year note yield will end the year at 4.87 percent, according to a separate survey.

The pound fell 7.3 percent against the euro this year. It has declined 1.3 percent versus the dollar.

For Related News: Stories on bonds: NI BON Stories on European government debt: TNI EUROPE GBN On the U.K. economy: TNI UK ECO BN On the credit crunch and bonds: TNI BON CRUNCH BN