Pound Falls to Record on Bets BOE to Cut Interest Rates Further

By Ye Xie and Lukanyo Mnyanda

Jan. 21 (Bloomberg) -- The pound fell to a record low against the yen for a second day and the weakest level since 2001 versus the dollar on speculation the Bank of England will make further cuts in borrowing costs.

Sterling also dropped for a fourth day against the euro after BOE Governor Mervyn King said in a speech yesterday that the central bank may start buying assets within weeks after cutting the main rate to the lowest level since 1694. The Canadian dollar rose from a six-week low and Norway’s krone advanced as crude oil gained.

King’s “speech hurt the currency as it was more explicit than we expected,” said Geoffrey Yu, a foreign-exchange strategist at UBS AG in London. “The central bank is turning on the printing presses.”

The pound fell 0.8 percent to 123.96 yen at 9:03 a.m. in New York from 125.01 yen yesterday. It reached an all-time low of 122.99 yen. Sterling dropped 1.1 percent to $1.3774, from $1.3928, and touched $1.3716, the lowest level since June 2001. Against the euro, the pound depreciated 1.1 percent to 93.68 pence, from 92.62, after breaching 94 pence for the first time since Jan. 5. The euro was at $1.2905, compared with $1.2904.

Japan’s yen weakened 0.3 percent to 90.01 versus the dollar from 89.76 and dropped 0.4 percent to 116.30 from 115.85.

Canada’s currency gained 0.1 percent to C$1.2668 per U.S. dollar as crude oil for March delivery advanced as much as 2.8 percent to $41.99 a barrel in New York. The currency earlier touched C$1.2726, the weakest level since Dec. 9. Crude generates about a tenth of Canada’s export revenue.

Norway’s Krone

Norway’s krone rose 1.7 percent to 9.0371 per euro as crude oil, the country’s biggest export, gained. Sweden’s krona increased for the first time in three days versus the euro, rising 1.5 percent to 10.7284.

Goldman Sachs Group Inc. last month named the two currencies as its top picks for 2009, saying the Nordic economies will avoid the worst of the global recession. The krone has gained 7 percent versus the euro this month after losing 18 percent last year. The krona advanced 2.6 percent, following a 14 percent drop in 2008.

The BOE’s Monetary Policy Committee voted 8-1 to trim the main rate by a half-percentage point to 1.5 percent, minutes of the Jan. 8 decision published in London today show.

Since the middle of last year, “the exchange rate has fallen by almost 20 percent, and oil prices have fallen by around two-thirds, both of which will boost demand,” King said yesterday in Nottingham, England.

Pound Versus Dollar

Britain’s currency may extend losses versus the dollar as signs the global economic slowdown is deepening prompt investors to buy safer assets, Yu said, without giving a specific forecast. The pound may fall to $1.30 “sooner rather than later,” Bank of Tokyo-Mitsubishi UFJ Ltd. said in a note today.

“We expect the pound to weaken further against the dollar,” said Derek Halpenny, European head of global currency research in London at Bank of Tokyo. “Governor King afforded the collapse of the pound one line in his speech last night, and it was highlighting the positive aspect of pound weakness.”

The Bank of England will lower its benchmark rate by a half-percentage point to 1 percent at its Feb. 5 meeting, according to a Bloomberg News survey of economists.

The yen advanced for a third day against the pound as a U.K. report showed unemployment climbed in December at the second-fastest pace since 1991.

Japan’s currency fell for the first time in three days versus the euro on speculation the European currency’s 9.1 percent advance this month was too big to sustain.

The euro’s 14-day stochastic oscillator versus the yen was 8.4, according to data compiled by Bloomberg. A level below 20 suggests a currency may have weakened too quickly and is poised to rebound.

“The yen looks overbought,” said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. “There’s a bit of unwinding in long positions,” he said. A long is a bet on a rise in an asset price.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net