Bloomberg News

Pound Gains Versus Euro After U.K. Services Data Beats Forecasts

July 05, 2011

July 5 (Bloomberg) -- The pound strengthened against the euro and the dollar after a report showed a measure of U.K. service industries exceeded economists’ forecasts in June, alleviating concerns about the economic recovery.

Sterling advanced versus all but one of its 16 major peers monitored by Bloomberg, climbing most against the yen. A gauge of U.K. services growth based on a survey of companies rose to 53.9 from 53.8 in May, Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply said today in a report. The median forecast of 26 economists polled by Bloomberg predicted a decline to 53.5. A level above 50 indicates expansion.

“The focus from the market right now is very much on the growth numbers, and positive data outcomes will tend to be supportive of sterling,” said Chris Scicluna, deputy head of economic research at Daiwa Capital Markets Europe in London.

The pound appreciated 0.6 percent to 89.88 pence per euro at 10:41 a.m. in London, the first time in three days that it has traded stronger than the 90 pence level. Sterling rose 0.3 percent to $1.6124, a third consecutive day of gains.

The pound has slumped this year against 12 of 16 major currencies tracked by Bloomberg as Conservative Prime Minister David Cameron’s austerity measures to shrink the budget deficit crimp growth and inflation squeezes incomes at the fastest pace since the 1970s. Efforts to eliminate the bulk of the fiscal shortfall by 2015 involve the deepest spending cuts since World War II and more than 300,000 state-employee job losses.

Short-Sterling Futures

Worsening economic growth has prompted traders to reduce bets on higher rates, with the implied yield on short-sterling futures expiring in March falling to 1.02 percent today, down from a high of 2.08 percent in February. Short-sterling futures are used by analysts to gauge the future trajectory of borrowing costs between banks.

The Bank of England will keep its main rate unchanged at 0.5 percent on July 7 when it announces its next monetary-policy decision, according to all 51 analysts surveyed by Bloomberg.

Investors are betting the central bank won’t raise borrowing costs until after next May, according to forward contracts on the sterling overnight interbank average, data from Tullett Prebon Plc show. As recently as February, traders were betting on a rate increase in May of this year, the data showed.

Gilts rose for a second day, lowering 10-year yields by two basis points to 3.34 percent. Yields on two-year notes declined one basis point to 0.81 percent.

Britain sold 3.25 billion pounds of 3.75 percent bonds due September 2021 at an auction today, the U.K. Debt Management Office said. Investors bid for more than twice the amount offered, DMO data showed.

--Editors: James Kraus, Keith Campbell

To contact the reporter on this story: Garth Theunissen in London at

To contact the editor responsible for this story: Daniel Tilles at

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