Pound Little Changed Versus Dollar, Heads for Third Weekly Gain

By Andrew MacAskill and Lukanyo Mnyanda

Sept. 26 (Bloomberg) -- The pound rose against the dollar, headed for a third weekly gain, its longest run of increases since May. The British currency was little changed versus the euro.

The pound climbed to $1.8382 per dollar as of 7:09 a.m. in London, from $1.8372 yesterday, and is 0.4 percent higher in the week. Against the euro, the currency traded at 79.58 pence, from 79.50 pence, down 0.8 percent since Sept. 19.

A $700 billion rescue of the U.S. financial system stalled as House Republicans undercut the Bush administration and left it to congressional leaders to hammer out a compromise that would calm markets. U.K. Prime Minister Gordon Brown urged the Congress yesterday to back the plan for financial companies as European finance ministers expressed concern market turmoil will damage the world economy.

HSBC Holdings Plc, Europe's largest bank by market value, cut 1,100 jobs in its global banking and markets division as the deepening financial crisis threatens to extend a decline in profit. Money market rates have soared as banks have all but stopped lending to each other. The one-month London interbank offered rate, or Libor, that banks charge each other for pound loans climbed yesterday to the highest since December.

HSBC is among banks raising mortgage rates today, the Financial Times reported, without citing anyone from the bank.

Inflation Threat

Bank of England policy maker Kate Barker said yesterday there's a threat the fastest inflation in a decade may persist even as the financial crisis raises the chance of the bank undershooting its target for consumer prices. The comments suggest Barker may be wary of the call by her colleague, David Blanchflower, for immediate interest-rate cuts. The crisis is choking the supply of credit to companies and households, pushing Britain toward its first recession since the early 1990s.

The pound's trade-weighted index, a gauge of the currency's performance against Britain's major trade partners, dropped 0.1 percent to 87.24, according to Deutsche Bank AG. The gauge, down 0.4 percent this week, has dropped 7.9 percent in 2008.

U.K. government bonds fell yesterday on optimism the bailout for banks and investors would be approved, luring investors to riskier assets such as stocks. The FTSE 100 Index jumped 2 percent, the first advance in four days.

The yield on the 10-year note rose 5 basis points to 4.62 percent. The 5 percent security due March 2018 lost 0.39, or 3.9 pounds per 1,000-pound ($1,838) face amount, to 102.87.

The yield on the two-year note also increased 5 basis points, to 4.34 percent. Yields move inversely to bond prices.

U.K. policy makers kept the benchmark interest rate unchanged on Sept. 4 as they weighed the risks of accelerating inflation against the danger that mounting bank losses will push Europe's second-biggest economy into a recession. The next Bank of England decision is Oct. 9.

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