Pound Trades Near 5-Year Low Versus Dollar Before Retail Data

By Kim-Mai Cutler

Oct. 23 (Bloomberg) -- The pound traded near its lowest level in more than five years against the dollar before reports that will probably show retail sales dropped last month and the British economy contracted in the third quarter.

Sales declined 0.7 percent in September from August, the first monthly decline since June, the Office for National Statistics will say today, according to the median of 33 economists surveyed by Bloomberg. The pound dropped yesterday to the weakest since September 2003 after Prime Minister Gordon Brown predicted the U.K. will enter into a recession.

``I don't see anything that can stop this,'' said David Woo, global head of currency strategy in London at Barclays Capital. ``It's shocking. I can't say we've anticipated this move.''

The pound traded at $1.6286 as of 8:10 a.m. in London, from $1.6267 yesterday, when it had the steepest intraday decline in 16 years. Against the euro, the pound snapped three days of losses, strengthening to 78.65 pence, from 79.05.

Bank of England Governor Mervyn King also said this week the U.K. may enter a recession. A report tomorrow may show the economy contracted 0.2 percent in the third quarter from the previous three-month period, the median of 35 economist forecasts shows.

Government two-year gilts opened lower, snapping a six-day gain. The yield rose 1 basis point to 3.20 percent. The 4.75 percent note maturing June 2010 slipped 0.02, or 20 pence per 1,000-pound ($1,629) face amount, to 102.43. The yield on the 10- year security was little changed at 4.49 percent. Bond yields move inversely to prices.

The spread, or difference, in yield between two- and 10-year notes was at 130 basis points, holding at the widest since October 1996, in a sign traders expect the Bank of England to lower interest rates again by year-end.

The U.K. Treasury will auction 3 billion pounds of 5 percent notes due in 2018 today to help finance the government's rescue of the three of the country's biggest banks.

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net