Pound Gains Against Dollar, Euro Before Producer Prices Report

By Lukanyo Mnyanda

Sept. 8 (Bloomberg) -- The U.K. pound advanced before a government report that will probably show producer-price inflation held near the highest level in more than two decades in August, making it less likely the Bank of England will cut interest rates to revive the economy.

The pound snapped a nine-day decline against the dollar before data from the Office for National Statistics that economists forecast will show prices charged by factories probably rose 10.2 percent in the year, the same as in July. The nine-member Monetary Policy Committee, which is seeking to balance the risk of a recession with the fastest inflation in more than a decade, kept its main rate at 5 percent on Aug. 4.

Sterling is ``very vulnerable in an environment where the Bank of England's hands remain very tied at the moment,'' Mitul Kotecha, Hong Kong-based global head of currency strategy at Calyon, said in a Bloomberg Television interview.

The pound was at 80.45 pence per euro by 6:52 a.m. in London, from 80.72 on Sept. 5, gaining for a third day. The pound was at $1.7924, from $1.7661 at the end of last week, when it slipped to the lowest level since April 2006.

The July reading was the fastest since records began in 1986. The producer-price inflation data are scheduled for release at 9:30 a.m. in London.

The pound's trade-weighted index, a gauge of the currency's performance against Britain's major trade partners, has slumped 9 percent this year and was at 86.01 today, according to Deutsche Bank AG. The measure is at the lowest level since at least 2000.

Britain's central bank is seeking to bring consumer inflation below its 2 percent target. Price growth accelerated to 4.4 percent in July, making it less likely policy makers will add to three interest-rate cuts since December, even as a slump in the nation's housing market threatens to push the economy into recession.

The currency's slide last week accelerated after Chancellor of the Exchequer Alistair Darling told the Guardian newspaper on Aug. 30 the U.K. faces its biggest economic slowdown in 60 years. He later said he was referring to the world economy.

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net