British Pound's Slide Deepens, Trades Below $1.50 a Second Day

By Lukanyo Mnyanda

Nov. 13 (Bloomberg) -- The British pound dropped, trading below $1.50 for a second day, as evidence accumulated Europe's second-biggest economy is withering.

The U.K. currency breached $1.50 yesterday for the first time in more than six years. Job vacancies in London's financial- services industry sank 48 percent in October from a year earlier, according to a survey by recruitment firm Morgan McKinley. It's the fourth consecutive monthly decline for new job opportunities within the City. The Bank of England indicated yesterday it will keep cutting interest rates as the economy slumps.

``Don't rule out the risk of more significant downside beyond $1.40,'' Divyang Shah, chief strategist in London at CBA Europe, a unit of Commonwealth Bank of Australia, wrote in a note yesterday. ``The BOE-inspired fall was an accident waiting to happen.''

The pound dropped as low as $1.4832 and traded at $1.4900 as of 7:05 a.m. in London, from $1.4893 yesterday. Against the euro, the British currency was at 83.57 pence, from 83.56 pence yesterday, when it slid to the lowest level since the debut of the European common currency in 1999.

Chancellor of the Exchequer Alistair Darling will forecast in his pre-Budget report this month the recession will be over by 2010, the Independent reported, citing an interview with Darling. The German economy, Europe's biggest, contracted more than economists expected in the third quarter, confirming it has entered its worst recession in at least 12 years as the global financial crisis curbed exports and spending.

Pound Weakness

The U.K. currency declined 25 percent against the dollar and 12 percent versus the euro this year amid the fallout from the global credit crisis. The pound traded above $2 as recently as July 23.

The pound's 14-day relative-strength index versus the euro, a technical indicator some traders use to forecast changes in price direction, was at 28.3 today, below the 30 threshold that signals a rebound for a second day. The previous time the pound was below 30, on Sept. 3, the U.K. currency rose the next eight days.

Gross domestic product will contract by an annual 1.8 percent in the first three months of the year, according to forecasts from the central bank yesterday. ``We are certainly prepared to cut the bank rate if that proves to be necessary,'' Bank of England Governor Mervyn King said at a press conference in London.

A government report yesterday showed unemployment claims rose to the highest level since March 2001, adding to evidence the economy is deteriorating.

U.K. two-year government notes rose yesterday, with the yield sliding 25 basis points to 2.32 percent. The 4.75 percent security due June 2010 gained 0.38, or 3.8 pounds per 1,000-pound ($1,491) face amount, to 103.72. The 10-year yield declined 11 basis points to 4.1 percent. Bond yields move inversely to prices.

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