Currencies

THE POUND may hover near a 10-week low against the dollar as investors await minutes from the Bank of England's most recent meeting: these may help determine if another cut in interest rates is in store.

The BoE reveals on Wednesday how many policy-makers voted for the quarter- point cut in benchmark interest rates agreed at the 10 June monetary policy committee (MPC) meeting. That trimmed the rate to a 22-year low of 5.0 per cent: at the previous meeting, policy-makers voted 5-4 to keep rates unchanged. "Everyone will be looking at the voting," said Stuart Green, economist at Credit Lyonnais. "We think they've got one more cut left."

On Friday, the pound was little changed at $1.5922, down 21/2 cents from a week ago. On Thursday, sterling touched a 10-week low of $1.5853, and is down 4 per cent against the US currency this year.

Sterling fell against the euro to pounds 0.6521 per euro from pounds 0.6487 after the European System of Central Banks intervened on behalf of the Bank of Japan, buying euros and selling yen to stunt the yen's rise.

The euro surged against the dollar, the yen and the pound.

The Bank of England has cut rates six times in the past nine months to spur growth in Europe's third largest economy, and may do so again if inflation threatens to drop below the Government's target of 2.5 per cent. Inflation slipped below the target for a second month in May, coming in at a lower-than-expected 2.1 per cent. That rekindled speculation the BoE may lower rates again this year.

"The low inflation numbers opened up discussion about the Bank of England cutting rates again," said Jane Foley, a currency strategist at Barclays Capital. With US rates set to rise, she sees the pound below $1.55 in the next 12 months.

Still, most economists expect the UK central bank will keep its benchmark rate unchanged at 5.00 per cent through September. Only a minority think it will then cut its rate again. One economist expects the Bank of England to raise borrowing costs to 5.25 per cent to prevent the economy overheating.

Elsewhere, America's Federal Reserve may raise the cost of borrowing in the US at the end of this month to keep inflation at bay. Higher US rates mean a better return on dollars, with three-month dollar money market rates offering about 5.17 per cent compared with 5.12 per cent in sterling. The last time investors received a better return on dollar deposits than pound deposits was December 1994.

A diminishing return on sterling deposits may be offset by signs that the economy is improving and help stem the pound's fall against the dollar, investors said. "The economy appears to be picking up," said Simon Rubinsohn, at Capel-Cure Sharp. He said he doesn't expect the pound to fall below $1.5850.

Evidence that lower rates are buoying the housing market came from a report showing house prices rose at their fastest rate for more than a year last month. The Building Societies' Association and the British Bankers' Association both said their members' lending increased in May.

More reports on the UK economy will come on Wednesday when the Government releases trade figures for April and May and on Thursday with the CBI's monthly industrial trends survey for June.