Pound Falls to Record Low Versus Yen on U.K. Economic Concern

By Ron Harui

Jan. 21 (Bloomberg) -- The British pound fell to a record low against the yen and the weakest since 2001 versus the dollar on concern the U.K. recession will deepen, supporting the case for the Bank of England to cut interest rates further.

Sterling declined for a fourth day against the euro, the longest stretch since the end of last year, before the BOE releases the minutes of its Jan. 8 meeting at which it reduced its benchmark rate to a record low 1.5 percent. The yen rose against the Australian and New Zealand dollars as speculation the global slowdown will worsen prompted investors to sell higher-yielding assets.

“The BOE minutes are due and one might expect dovish tones to dominate,” Greg Gibbs, director of foreign-exchange strategy in Sydney at ABN Amro Australia Ltd., wrote in a research note today. The pound is likely to extend its decline toward a “minor support” level at its 2001 low against the dollar, he said.

The pound fell to 123.90 yen as of 8:04 a.m. in London from 125.01 yen late in New York yesterday. It reached an all-time low of 123.80 yen. The currency declined to $1.3858 from $1.3928. It touched $1.3790, the lowest since June 2001. Against the euro, the pound slid to 93.23 pence from 92.62 pence yesterday. It reached 93.51 pence, the lowest since Jan. 5.

The yen rose 2.2 percent to 58.52 against Australia’s dollar, and climbed 1.7 percent to 47.15 versus New Zealand’s currency from late in Asia yesterday. Japan’s Nikkei 225 Stock Average fell to a seven-week low.

Jobs Report

The Bank of England will release the minutes of its January meeting at 9:30 a.m. in London. The central bank 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.

Japan’s currency also advanced for a third day against the pound before a U.K. report that may show unemployment climbed at the fastest pace since 1991.

“The market is reflecting the downside risk of the global economy and an increase in risk aversion by investors,” said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital. “The yen carry trade is being unwound and the yen is the beneficiary. This move will continue for a long time.”

The yen may strengthen to 84 yen against the dollar and 105 per euro in three months, Umemoto forecast.

The number of people in the U.K. receiving jobless benefits rose by 81,000 in December, the most since March 1991, according to a Bloomberg survey of economists. The Office for National Statistics will release the data at 9:30 a.m. in London.

Carry Trades

Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan, encouraging investors to borrow in yen and buy higher-yielding assets elsewhere.

In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher rates. The risk is that currency market moves erase those profits.

Gains in the yen were tempered against the dollar after U.S. Treasury Secretary-nominee Timothy Geithner urged Congress to pass a stimulus plan with “sufficient strength” to revive the economy. Japan’s currency also ended a two-day winning streak versus the euro after a technical chart signaled its 9.1 percent advance this month was excessive.

“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. Long positions are bets on a rise in an asset price.

The euro’s 14-day stochastic oscillator versus the yen was 7, according to data compiled by Bloomberg. A level below 20 suggests a currency may have weakened too quickly and is poised to rebound.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net.

Last Updated: January 21, 2009 03:06 EST