British Pound Slips Against Euro Before Bank of England Minutes

By Andrew MacAskill and Lukanyo Mnyanda

Sept. 17 (Bloomberg) -- The pound fell against the euro and was little changed versus the dollar before the Bank of England publishes minutes of its latest interest-rate meeting and a government report that may show jobless-benefit claims rose.

The Monetary Policy Committee kept the benchmark rate at 5 percent on Sept. 4 as it weighed the risk of accelerating inflation against the threat of a recession. Bank of England Governor Mervyn King said yesterday inflation will peak ``soon'' around 5 percent. Unemployment claims probably were 23,000 in August, from 20,100 in July, the median estimate of 25 economists surveyed by Bloomberg showed.

``The MPC minutes to be released today take on added importance in light of the mounting financial risks to the U.K.,'' a team headed by New York-based Gabriel de Kock, senior currency strategist at JPMorgan Chase & Co., wrote today in a report. ``Should the minutes show little sign of flexibility that would allow a rate cut soon, euro-pound could retrace some of the past fortnight's decline.''

The British currency dropped to 79.42 pence per euro as of 6:38 a.m. in London, its second day of declines, from 79.26 pence yesterday. Against the dollar, the pound was little changed at $1.7828, from $1.7835.

The pound's trade-weighted index, a gauge of the currency's performance against Britain's major trade partners, declined to 86.67, according to Deutsche Bank AG. The measure is down 8.5 percent this year.

Bank Minutes

The Bank of England will release the minutes of its last meeting at 9:30 a.m. in London. King voted with six other members of the MPC to keep interest rates on hold in August. One member voted for an increase and another for a reduction last month.

``There is likely to be a dovish bias starting to come through,'' said Jeremy Stretch, senior strategist in London at Rabobank International, the third-largest Dutch bank. ``This may lead to a sell off of sterling.''

The U.S. Federal Reserve kept its benchmark rate unchanged at 2 percent yesterday, with the bank citing risks to growth and inflation. The insurer American International Group Inc. averted the worst financial collapse in history by accepting an $85 billion federal loan and giving the government a majority stake.

The Bank of England is among central banks that have pumped cash into money markets to help stabilize the financial system. The bank injected 20 billion pounds ($36 billion) yesterday, with the Fed, the European Central Bank and Bank of Japan also contributing liquidity.

The jobless-claims statistics are also scheduled to be announced at 9:30 a.m. in London.

U.K. government bonds rose yesterday, with the 10-year yield falling 4 basis points to 4.42 percent. The 5 percent security due March 2018 increased 0.33, or 3.3 pounds per 1,000-pound face amount, to 104.46.

The yield on the two-year note dropped 8 basis points 4.25 percent. Bond yields move inversely to prices.

To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.netLukanyo Mnyanda in London at lmnyanda@bloomberg.net