Pound Falls as G-20 Agrees on Bank Pay, King Welcomes Weakness

By Anna Rascouet and Morwenna Coniam

Sept. 25 (Bloomberg) -- The pound fell, trading below $1.60 for the first time in more than two months, as world leaders united behind a plan to regulate banker pay and tighten capital regulations for financial institutions.

The British currency also dropped against the euro as U.S. officials said Group of 20 leaders meeting in Pittsburgh are near a “broad agreement” on a plan to tie compensation more closely to risk. The pound dropped the most since April versus the dollar yesterday and traded at its lowest in more than five months against the euro after Bank of England Governor Mervyn King said the currency’s weakness was “very helpful” to the U.K. economy.

“Sentiment is pretty poor for sterling,” said Steven Barrow, head of G-10 currency research at Standard Bank Plc in London. “It comes down to what King was saying yesterday. At the G-20, there are issues of bonuses and bank capital and those developments for bank regulation are going to be things that restrict bank profitability.”

The pound fell to $1.6029 as of 8:44 a.m. in London, from $1.6059 yesterday, and traded as low as $1.5918 earlier, its weakest level since July 8. It also depreciated to 91.62 pence per euro, from 91.29 pence. It reached 91.93 pence earlier, the weakest level since April 1.

Tightened rules on banking and pay may hurt Britain’s economy more than others because of its dependence on the financial industry, analysts say. London’s square mile, as the country’s main financial district is known, generates a third of U.K. corporation tax revenue and as much as 15 percent of all tax paid to the government, according to Stuart Fraser, the City of London’s policy chairman.

U.K. government bonds rose, with the 10-year gilt yield falling 3 basis points to 3.66 percent. The yield on the two- year note also dropped 3 basis points, to 0.75 percent.

To contact the reporters on this story: Anna Rascouet in London at arascouet@bloomberg.net; Morwenna Coniam in London at mconiam@bloomberg.net