London, Feb. 14 (Bloomberg) -- The British pound fell for the third day this week against the dollar on speculation the Bank of England will lower its main interest rate in coming months, cutting returns on pound-denominated deposits. The pound fell to $1.6178 at 8:55 a.m. in London, from $1.6213 late yesterday, paring its gain this year to 0.5 percent. It was at 66.87 pence per euro, compared with 66.88. Britain's central bank on Wednesday cut its forecast for economic growth to a little less than 2.5 percent this year, from the 3.1 percent it forecast in November. Policy makers last week unexpectedly cut their key rate to a 48-year low of 3.75 percent. ``In an environment where investors are looking for yield,'' a rate cut would diminish the pound's appeal, said Neil Jones, director of foreign exchange at Nomura International.
Losses in the pound may be limited amid speculation a United Nations report on Iraq's weapons program may bring the U.S. closer to launching an attack. UN chief arms inspector Hans Blix and Mohamed ElBaradei, head of the International Atomic Energy Agency, are scheduled to brief the Security Council starting at 3:15 p.m. London time. The effect on the dollar may depend on whether the testimony strengthens or diminishes international support for an attack, analysts said. ``It's clearly geopolitical concerns that are driving the currency markets,'' and those tend to weaken the dollar, said Michael Klawitter, a strategist at WestLB. Everyone `is waiting for Blix.''
Blix Report
A war is seen as negative for the dollar because it may crimp U.S. business and consumer confidence, many analysts have said. A conflict without the support of the North Atlantic Treaty Organization would be even more negative because the U.S. would have to shoulder more costs and would be more exposed to reprisal attacks by terrorists, they said. Blix's report may further divide the Security Council where France, Germany and Russia want inspections increased. Inspections in Iraq should be extended, ElBaradei said in an interview yesterday with the Associated Press on his way to New York from Vienna. The dollar's losses may be limited if ``Blix makes a clear statement that Iraq isn't fulfilling its promises,'' making it harder for those countries to oppose the U.S.'s plans, said Klawitter.
``If he says inspectors need more time,'' that may result in more confrontation between the U.S. and countries such as France, potentially ``ending in unilateral action by the U.S., which is the worst scenario for the dollar,'' he said. U.S. Secretary of State Colin Powell said Wednesday he will challenge France and Germany at the meeting, asking whether they are delaying to get Iraqi leader Saddam Hussein ``off the hook.'' Powell and U.K. Prime Minister Tony Blair said yesterday that evidence Iraqi missiles exceed //www.quote.bloomberg.com