The pound held a two-day advance against the euro, touching the strongest level in two weeks, after the Bundesbank cut its forecast for economic expansion in Germany, damping demand for the 17-nation shared currency.
Sterling declined versus the dollar as a report showed U.S. employers added more jobs in November than economists forecast. The pound was set for its biggest weekly gain in six against the euro after three officials with knowledge the European Central Bank’s deliberations said a majority of policy makers were open to cutting the benchmark interest rate. Chancellor of the Exchequer George Osborne this week revised down the British government’s economic growth forecasts.
“These downward revisions from the Bundesbank in Germany are significant and are going to be a factor which weighs on the euro over the longer term,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “In the U.K., the downward revisions were widely expected. They were very well factored in, so sterling was able to shrug that news off.”
The pound was little changed at 80.75 pence per euro at 4:09 p.m. London time, after reaching 80.45 pence, the strongest level since Nov. 22. It has gained 0.4 percent this week, the most since the period ended Oct. 26. Sterling dropped 0.2 percent to $1.6024 today.
The Frankfurt-based Bundesbank cut its 2013 growth projection to 0.4 percent from the 1.6 percent predicted in June and said the economy, Europe’s largest, will grow 0.7 percent this year, down from its previous forecast of 1 percent. Gross domestic product will fall in the fourth quarter this year and stagnate in the first quarter next year, the Bundesbank said.
ECB President Mario Draghi said yesterday that while there had been “wide discussion” about interest rates among policy makers, “the prevailing consensus was to leave” borrowing costs unchanged at a record-low 0.75 percent. The central bank also kept the deposit rate at zero.
U.S. employment climbed by 146,000 following a revised 138,000 gain in October that was less than initially estimated, Labor Department figures showed today in Washington. The median estimate of 91 economists surveyed by Bloomberg called for an increase of 85,000.
Sterling has strengthened 1.1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro declined 2.5 percent and the dollar fell 2.3 percent.
Total industrial output in the U.K. fell 0.8 percent in October from the previous month, the Office for National Statistics said today in London. The median forecast of 31 economists in a Bloomberg News survey called for a 0.8 percent increase. Manufacturing production shrank 1.3 percent from September, a separate report showed. Economists in a Bloomberg survey had predicted a drop of 0.2 percent.
Osborne told lawmakers on Dec. 5 that forecasts from the Office for Budget Responsibility show the U.K. economy will shrink 0.1 percent this year instead of the 0.8 percent growth predicted in March, and expand 1.2 percent next year instead of 2 percent.
The chancellor extended his austerity program by one year to 2018 and said he will miss by a year his target to start cutting debt as a percentage of GDP in 2015.
U.K. government bonds were little changed as a report from the National Institute of Economic and Social Research said Britain’s economy probably barely grew in the three months through November.
GDP rose 0.1 percent in the period, the same rate as in the quarter through October, the institute, whose clients include the Bank of England and the U.K. Treasury, said in a statement in London today.
The 10-year gilt yield was at 1.74 percent, set to drop four basis points this week. The price of the 1.75 percent bond due in September 2022 was at 100.065.
Gilts returned 3.1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 4.3 percent and U.S. Treasuries earned 2.8 percent.
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