Pound weaker on King letter to Exchequer

Pound weaker on King letter to Exchequer

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The pound weakened Tuesday after the Mervyn King, the governor of the Bank of England, said that inflation in the UK will peak soon and then slow down in 2009.

The remarks, which came in a letter to the Chancellor of the Exchequer explaining why the rate of inflation has exceeded government targets by more than one percent for three months, raised sentiment that the Bank will cut interest rates soon.

In late morning trade in New York, the pound traded at 79.68p to the euro, while it took $1.7767 to buy a pound.

The South African rand declined as well as investors sold higher-yield currencies after both Standard & Poor’s and Moody’s Investors Service cut their credit rating on troubled US insurer American International Group (NYSE: AIG).

The rand was also hurt by falling prices for gold and platinum and lately traded at R8.1845 to the US dollar and at $11.587 to the euro.

The flight from higher-yielding currencies, coming as global equities markets dropped significantly for a second day, also hurt the Australia and New Zealand dollars.

The Aussie was worth ¥82.35 while it took 79.29 cents US to buy an Australian dollar and the kiwi was worth ¥67.9 and 65.81 cents US at late morning in New York.

The US dollar drew strength from speculation, reported on US television, that there was a possibility that the government will bail out AIG, with the greenback trading at $1.4157 to the euro at just past 11 a.m. New York time while the dollar was worth ¥104.93.