The pound fell the most in a week against the dollar after a German report showed retail sales unexpectedly declined in January, damping demand for assets with the strongest links to the euro-region.
Ten-year gilts advanced as the German data added to signs the sovereign debt crisis is slowing growth in the euro-area. The pound strengthened for a sixth day against the euro after a U.K. report showed construction accelerated in February. The government sold 4.5 billion pounds ($7.14 billion) of bills.
“There is definitely a risk-off feel as we wind down the week,” said Peter Rosenstreich, chief currency strategist at Swissquote Bank SA in Geneva. “The steady stream of news has had an eroding effect on the market confidence and what happens in Germany is critical. Today is the first day of heavy cable selling,” he said, referring to the pound against the dollar.
Sterling dropped 0.6 percent to $1.5857 at 4:01 p.m. London time after falling as much as 0.8 percent, the most since Feb. 22. The pound climbed 0.2 percent to 83.27 pence per euro extending this week’s gain to 1.7 percent.
German retail sales, adjusted for inflation and seasonal swings, declined 1.6 percent from December, the Federal Statistics Office in Wiesbaden said. The median estimate in a Bloomberg survey of economists was for a 0.5 percent gain.
The yield on the 10-year gilt dropped seven basis points, or 0.07 percentage point, to 2.15 percent. The 4 percent bond due March 2022 rose 0.63, or 6.30 pounds per 1,000-pound face amount, to 116.59.
Sterling headed for its biggest weekly gain versus the euro this year as the improvement in building activity followed data this week showing house prices increased last month and retail sales improved.
The construction gauge, based on a survey of purchasing managers rose to 54.3 from 51.4 in January, Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply said. That’s the highest since March 2011. Economists surveyed by Bloomberg forecast a reading of 51.3.
“This morning’s data will probably add to the outperforming tone we have seen on sterling against the euro throughout the week,” said Audrey Childe-Freeman, global head of currency strategy at JPMorgan Private Bank in London.
The U.K. government sold 1.5 billion pounds of 182-day bills at a yield of 0.4248 percent. It also auctioned 28-day and 93-day securities.
The pound has weakened 3.3 percent over the past year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro dropped 4.5 percent, and the dollar gained 0.4 percent.
Gilts have handed investors a loss of 1.5 percent in 2012, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds, Europe’s benchmark securities, dropped 0.1 percent.
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