June 3 (Bloomberg) -- The pound fell against the euro for a fourth straight day after an index of U.K. service industries dropped more than economists estimated, adding to pressure on the central bank to keep interest rates on hold.
Sterling headed for a weekly loss against all 16 major currencies monitored by Bloomberg, reaching 89 pence per euro for the first time since May 5. Barclays Capital pushed back its forecast for the Bank of England to start increasing interest rates after a manufacturing index fell to a 20-month low this week and U.K. mortgage approvals dropped to the least in four months amid signs of slower global growth. Sterling stayed lower as U.S. payrolls rose less than analysts estimated.
“The market has to adjust to the fact that the Bank of England won’t lift rates at all this year,” said John Hydeskov, chief analyst at Danske Bank A/S in London. “Data has been terrible and I think the trend is going to continue. We’re bearish on sterling.”
The pound depreciated as much as 0.8 percent to 89.24 pence per euro, before trading at 89.01 pence as of 4:02 p.m. in London, headed for a 2.6 percent drop in the week. Sterling was little changed at $1.6373, bound for a 0.8 percent weekly decline.
The pound touched its weakest level on record today, according to Bloomberg Correlation-Weighted Currency Indexes, a measure of 10 developed-market currencies. It’s dropped 1.2 percent this year as central bank officials debate how to manage signs of slowing growth and above-target inflation. Bank of England Markets Director Paul Fisher said in a Daily Mail report this week he would consider an increase in asset purchases if the economy “did take a sudden downturn.”
The services gauge from Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply fell to 53.8 in May from 54.3 in April, less than the 54.2 median estimate of 26 economists surveyed by Bloomberg News.
Barclays now expects officials to begin raising interest rates in November, rather than August, economists including Simon Hayes in London said in an e-mailed note today, citing U.K. and global economic “softness.”
U.S. payrolls increased by 54,000 last month, after a revised 232,000 gain in April, Labor Department figures showed today. The median forecast in a Bloomberg survey called for a rise by 165,000. The jobless rate climbed to 9.1 percent, the highest level this year, from 9 percent a month earlier.
Relative Interest Rates
While policy makers have kept the U.K.’s benchmark interest rate at a record-low 0.5 percent his year, inflation accelerated to 4.5 percent in April, the fastest since 2008. The European Central Bank raised borrowing costs for the euro area in April even as the region struggles to contain the sovereign-debt crisis that saw Portugal join Greece and Ireland in requesting international bailouts.
Money markets price in a 25 basis-point increase in the key rate in February, according to sterling overnight interbank average forwards, Tullett Prebon Plc data show. As recently as February investors bet the rate would be lifted by May.
The pound may weaken against the dollar as the Bank of England maintains loose monetary policy and rising global risk encourages investors to favor the U.S. currency instead, according to Bank of New York Mellon Corp.
“All the signs are that policy remains on hold for the foreseeable future,” chief currency strategist Simon Derrick wrote in an e-mailed note today. Global indicators are “flashing warning signs about rising risk aversion, typically a dollar positive. We wonder whether we may be about to see the start of a sustained move lower in cable.” Cable refers to the dollar-pound exchange rate.
U.K. government bonds slipped, with the two-year note yield rising three basis points to 0.90 percent, after the yield yesterday fell to 0.85 percent, its lowest since November. The 10-year gilt yield was also three basis points higher, at 3.28 percent.
U.K. debt sales may be cut as the government raises funds from unwinding taxpayers’ 65.8 billion-pound ($107.3 billion) stakes in Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc, RBC Capital Markets said.
“In the same way gilt sales increased as the cash requirement went up in the crisis, there is scope for gilt sales to be subject to downward revisions when the interventions are unwound,” said Sam Hill, a U.K. fixed-income strategist at RBC in London.
--With assistance from Svenja O’Donnell and Lucy Meakin in London. Editors: Matthew Brown, Peter Branton
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