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July 27 (Bloomberg) -- The pound declined from a two-month high against the dollar as an index of U.K. factory orders fell more than estimated and manufacturers’ optimism plunged to the lowest in two years.
Britain’s currency pared its advance against the euro and U.K. government bonds rose as the figures bolstered the case for keeping borrowing costs at a record low. The orders gauge, based on a survey of manufacturers conducted by the Confederation of British Industry, declined to minus 10 in July from 1 in June, the Confederation of British Industry said in a report in London today. Economists surveyed by Bloomberg predicted the gauge would fall to minus 3. U.K. housing demand fell for a third month in June, a separate report showed.
“This survey is pretty bearish,” said Simon Smith, chief economist at FXPro Financial Services Ltd. in London. “The pace of decline of optimism is concerning. This data heightens the case for keeping rates low. The pound will struggle over the next few months.”
The pound fell 0.4 percent to $1.6337 at 4:24 p.m. in London, after reaching $1.6439, the most since June 14. Sterling climbed 0.8 percent yesterday as President Barack Obama and Congress remained at odds over plans to raise the U.S. debt limit and data showed U.K. economic growth matched economists’ forecasts, boosting the relative appeal of British assets.
Britain’s currency was 0.6 percent stronger against the euro at 87.94 pence. It declined 0.3 percent to 127.36 yen.
“The growth data yesterday came in as expected, so we saw some kind of relief that the figure was not that bad, and the pound strengthened,” said You-na Park, a currency strategist at Commerzbank AG in Frankfurt. “If the U.S. debt issue is solved, then the market focus will shift back to the economic data. If we see some more negative data, then this will be more negative for the pound.”
U.K. demand for houses fell last month as waning consumer confidence and difficulties in getting a mortgage kept potential home buyers off the market, the National Association of Estate Agents said today. The number of potential buyers registered with real estate agents fell to 263 in June from 275 the previous month, the report showed.
Bank of England policy maker David Miles is due to give a speech at the London School of Economics at 6:30 p.m.
Sterling is still down 8.5 percent in the last 12 months, making it the second-worst performer among 10 developed-market currencies after the U.S. dollar, according to Bloomberg Correlation-Weighted Currency Indexes.
Bank of England officials said this month that the weakness in the U.K. economy may persist “for longer than previously thought” as they kept the key interest rate at 0.5 percent.
Seven of the bank’s nine-member Monetary Policy Committee, led by Governor Mervyn King, voted to keep rates unchanged this month, saying recent developments “reduced the likelihood that a tightening in policy would be warranted in the near term.” One official wanted more stimulus and two favored tightening.
The central bank will keep the rate at 0.5 percent until the first quarter of next year, when it will increase it to 0.75 percent, according to a Bloomberg survey of 20 economists. The European Central Bank has raised its key rate twice this year, to 1.5 percent, and is forecast to increase it to 2 percent by the end of the first quarter of next year, a separate survey shows.
U.K. government bonds rose, pushing the yield on the 10- year gilt down nine basis points to 2.99 percent. Two-year note yields declined three basis points to 0.68 percent.
--Editors: Keith Campbell, Peter Branton.
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