British Pound to Weaken Toward $1.60, Goldman Says

By Candice Zachariahs

Oct. 22 (Bloomberg) -- Britain's pound may weaken 4.2 percent against the dollar, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London, citing charts used to predict price movements.

``After a correction higher, prices have weakened again, turning the short-term momentum bearish,'' Edgeley wrote in a research note yesterday. The pound closed below $1.7045 yesterday, opening up ``a target around $1.60,'' he wrote, citing weekly and monthly stochastic and trend strength indicators.

The pound traded at $1.6704 at 7:27 a.m. in Tokyo from $1.6707 yesterday. It has fallen 10 percent over the past month.

Britain probably faces a recession and policy makers will act to prevent inflation from slowing too far after the country's worst banking crisis since World War I, Bank of England Governor Mervyn King said yesterday. House prices will extend declines and the pound may depreciate further, King said, his first explicit acknowledgement that the U.K. may be heading into a recession.

``Rate differentials also support the move,'' Edgeley wrote. The Bank of England and the Federal Reserve on Oct. 8 reduced benchmark rates by 0.5 percentage point to 4.5 percent and 1.5 percent, respectively, to calm financial markets rocked by seizure in credit markets.

``Not since the beginning of the First World War has our banking system been so close to collapse,'' King said yesterday.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net