Pound Peak Fuels Pessimism as Currency Mimics Dollar

Just a month after rising to a 26- year high against the dollar, the British pound is starting to look more like the beleaguered U.S. currency.

The pound weakened against 12 of the world's 16 most actively traded currencies since reaching $2.1161 on Nov. 9. In the U.K., just as in the U.S., policy makers are cutting interest rates to restore calm in credit markets and home prices are declining.

``When we look at economies around the world which are exposed to similar problems as in the U.S., the U.K. is pretty high on our list,'' said Andrew Balls, a global bond fund manager at Newport, California-based Pacific Investment Management Co., which oversees $721 billion. ``Sterling is a good currency to sell.''

The pound depreciated 3.5 percent to $2.0195 after reaching the highest level since May 1981 and fell for a third straight week. It weakened 10 percent versus the Canadian dollar this year and 5.8 percent against the euro. The dollar lost 7.9 percent this year on a trade-weighted basis against a basket of six currencies that make up the Fed's U.S. Dollar Index. It reached a record low in November.

Strategists say there's more pain in store for the pound. Zurich-based UBS AG and Frankfurt-based Deutsche Bank AG, the world's biggest foreign-exchange traders, predict the currency will weaken at least 6 percent against the dollar in 2008. Pimco, a unit of Munich-based insurer Allianz SE, New York-based Merrill Lynch & Co. and Goldman Sachs Group Inc. say sterling may be overvalued by as much as 25 percent, based on the level of trading done between the U.K. and the U.S., and prices for the same goods in the countries.

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