April 9 (Bloomberg) -- The U.K. pound posted a weekly loss against the dollar as British stocks fell for the first time in five weeks.
The British currency also fell against the Japanese yen on concern the recession may be worsening. The FTSE 100 Index of British shares fell 1.1 percent since April 3 as Royal Bank of Scotland Group Plc said it plans to cut 9,000 jobs and manufacturing dropped the most in at least four decades.
“Cable is still risk-based, so it moved in line with risk appetite throughout this week,” said Geoffrey Yu, a currency strategist at UBS AG, the world’s second largest currency trader. “We had these negative banking reports coming out and risk sentiment turned.”
The pound fell 0.7 percent to $1.4617 as of 5:25 p.m. in London, bringing its weekly decline to 1.5 percent. It dropped 1.3 percent this week to 146.99 yen and advanced 0.4 percent to 89.89 pence per euro.
The U.K. economy shrank 1.5 percent in the first quarter as the recession increasingly resembled the one that started in 1979 when Margaret Thatcher became prime minister, the National Institute of Economic and Social Research said on April 8.
The 10-year gilt advanced as investors sought the relative safety of fixed-income securities amid the declines in stocks. The yield on the 10-year security fell 14 basis points during the week to 3.28 percent. The yield on the two-year note fell six basis points to 1.33 percent.
‘Watching Stocks’
The Bank of England kept its benchmark interest rate unchanged at 0.5 percent today, ending six months of rate cuts. The central bank said it bought 26 billion pounds worth of debt and said policy makers voted to “continue with the program, announced on March 5, of asset purchases” totaling 75 billion pounds ($110 billion).
“The BoE’s reaffirmed commitment to 75 billion pounds was a marginal positive, but it didn’t give any other details, so we don’t know where we are in the process,” said Jason Simpson, a London-based U.K. interest-rate strategist at Royal Bank of Scotland Group. “We’re going to go back to watching stocks.”
Investors should buy 10-year U.K. index-linked securities because the Bank of England’s policy of printing money to purchase gilts will lead to a rise in inflation expectations, according to HSBC Holdings Plc.
“Implementation of quantitative easing has provided a favorable back-drop for inflation-linked markets,” wrote HSBC analysts including Andre de Silva. “Buying 10-year U.K. breakeven rates outright or on a relative basis versus the sterling inflation swap is recommended.”
To contact the reporter on this story: Anna Rascouet in London arascouet@bloomberg.net.
