LONDON (Reuters) - Sterling fell to a two-week low versus the euro and by more than a cent against the dollar on Monday as government plans to temporarily nationalise mortgage lender Northern Rock NRK.L added to worries about the economy.
The news that the government plans to take Northern Rock into public ownership added to investor concerns about the UK financial sector, encouraging speculation that interest rates are set to fall further from the current 5.25 percent.
This overshadowed an otherwise supportive report from property website Rightmove that said asking prices for houses in England and Wales rose in the four weeks to February 9.
“Markets are taking (Northern Rock) as a barometer on the health of the financial sector and any risks to the financial sector lead to downside risks to growth and to (a greater chance of) lower interest rates,” said Adam Cole, global head of currency strategy at RBC Capital Markets.
By 8:31 a.m. the pound had fallen almost half a percent to as low as $1.9510, its lowest in a week and over a cent off its session high. The euro went as high as 75.22 pence, its highest in two weeks.
Property website Rightmove said asking prices for houses posted their first acceleration since October last year, rising by 5.8 percent in February.
However, that was offset by news Chancellor Alistair Darling will announce new legislation allowing the government to take over Britain’s fifth-largest mortgage lender. Prime Minister Gordon Brown is to hold a news conference at 11 a.m..
Northern Rock has borrowed about 25 billion pounds from the Bank of England since the global credit crisis last year wrecked its funding model, sparking the first run on deposits at a British bank for some 140 years.
Reporting by Simon Falush; Editing by Ruth Pitchford