Pound Trades Near Record Low Versus Euro as House Slump Deepens

By Lukanyo Mnyanda

Nov. 11 (Bloomberg) -- The pound traded near a record low against the euro as an industry report showed U.K. home sales dropped last month to the lowest level in at least three decades, adding to evidence the economy is mired in a recession.

The pound slid yesterday to 82.09 pence per euro, the weakest since the debut of the single currency in 1999. Real-estate agents and surveyors sold an average of 10.9 homes in the quarter through October, the least since the series began in 1978, the Royal Institution of Chartered Surveyors said today. Traders raised bets yesterday the Bank of England will add to interest-rate cuts.

``A combination of expected aggressive further rate cuts, weak fundamentals and risk aversion ahead is driving the pound lower,'' Neil Jones, head of European hedge-fund sales in London at Mizuho Capital Markets, wrote in an e-mail yesterday. ``The sell-the-pound trade is not over yet.''

Britain's currency traded at 81.27 pence per euro as of 6:57 a.m. in London, from 81.67 pence yesterday. It rose to $1.5642, from $1.5604.

The weakening property market is encouraging shoppers to spend less. Retail sales fell an annual 2.2 percent in October, the first drop since April 2005, the British Retail Consortium said in a separate report today. Factory-gate prices fell at the fastest pace in at least 22 years last month, the Office for National Statistics said yesterday.

The Bank of England cut its benchmark rate last week by 1.5 percentage points to the lowest level since 1955. The 3 percent main rate compares with 3.25 percent in the euro region and 1 percent in the U.S.

Government notes dropped yesterday, with the yield on the two-year gilt rising 7 basis points to 2.56 percent. The 4.75 percent security due June 2010 fell 0.11, or 1.1 pounds per 1,000- pound ($1,563) face amount, to 103.35. The 10-year yield was little changed at 4.20 percent. Bond yields move inversely to prices.

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