Bloomberg News

Pound Falls Second Day Versus Dollar on Service Data; Gilts Rise

November 05, 2012

The pound fell for a second day against the dollar after an industry report showed U.K. services growth slowed more than analysts forecast in October, damping optimism the economy is recovering.

Sterling weakened versus all except three of its 16 major counterparts before the Bank of England meets this week to decide whether to increase monetary stimulus through so-called quantitative easing. The pound pared an advance against the euro after earlier rising to the strongest level in five weeks. U.K. government bonds gained for a second day.

“The U.K. data seems to have knocked sterling but I’d be wary of further weakness,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. “The hurdle for more QE is reasonably high.”

The pound fell 0.3 percent to $1.5980 at 4:08 p.m. London time after dropping 0.7 percent on Nov. 2. Sterling was little changed at 80.03 pence per euro after appreciating to 79.86 pence, the strongest since Oct. 2.

While the U.K. economy emerged from recession in the three months through September, recent data have been mixed.

A gauge based on a survey of purchasing managers fell to 50.6 last month from 52.2 in September, Markit Economics and the Chartered Institute of Purchasing and Supply said in London. That’s below the lowest estimate of 51 in a survey of 30 economists by Bloomberg News.

Bank of England policy makers will probably halt their stimulus program at their Nov. 7-8 meeting, economists said in a Bloomberg survey. They last increased it in July, when they added 50 billion pounds.

‘Same Bite’

Consumer and business concerns about the economic outlook may undermine the impact of QE, central bank Deputy Governor Charlie Bean said Oct. 31. In September, his fellow deputy governor Paul Tucker said the asset-purchase program no longer had “the same bite.”

The pound has gained 1.4 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro dropped 3.1 percent and the dollar fell 1.7 percent.

Investors should use options to bet the pound will extend recent gains versus the euro, according to Bank of America Merrill Lynch.

“Diverging growth expectations (improving U.K. data and stagnant euro-area data), central bank outlooks and intensifying euro zone risks leave a bearish outlook for euro-sterling,” foreign-exchange strategist Naeem Wahid in London, wrote in a note to clients.

The U.K. 10-year yield fell four basis points, or 0.04 percentage point, to 1.82 percent. The 1.75 percent bond due in September 2022 advanced 0.335, or 3.35 pounds per 1,000-pound face amount, to 99.39.

Gilts have returned 2.5 percent this year through Nov. 2, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 3.5 percent and U.S. Treasuries earned 1.9 percent.

To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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