Bloomberg News

Pound Falls Versus Euro After Manufacturing Data

February 01, 2013

The pound fell to a 14-month low against the euro after an industry report showed U.K. manufacturing grew less in January than economists forecast, damping demand for Britain’s currency.

Sterling headed for a fourth weekly loss versus the common currency as a European report this week showed economic confidence improved in January, adding to signs the region’s debt crisis is easing. Royal Bank of Scotland Group Plc suggested investors buy the pound against the euro, betting its slide is about to end. Gilts rose along with Treasuries after a report showed the U.S. unemployment rate increased and payrolls expanded less than analysts forecast in January.

“The pound’s weakness against the euro is likely to continue,” said Michael Derks, chief strategist at FxPro Financial Services Ltd. in London. “The decline is driven by a combination of both euro and U.K. stories. People are more optimistic about the euro and the U.K. is now less of a haven, especially when its economy is moving sideways.”

The pound depreciated 1 percent to 86.44 pence per euro at 3:16 p.m. in London after falling to 86.48 pence, the weakest level since November 2011. The currency has slumped 1.2 percent this week. Sterling dropped 0.6 percent to $1.5761.

Markit Economics and the Chartered Institute of Purchasing and Supply said their gauge of U.K. manufacturing output fell to 50.8 this month from a revised 51.2 in December. Economists surveyed by Bloomberg forecast a decline to 51. A reading above 50 indicates expansion.

Consumer Sentiment

An index of executive and consumer sentiment in the euro- area climbed to 89.2 in January, the highest since June, from 87.8 in December, the European Commission said Jan. 30.

The pound has weakened 3.9 percent this year, the second- worst performer after the yen of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 3.1 percent and the dollar dropped 0.5 percent.

Sterling pared losses against the euro after the European Central Bank said financial institutions will repay 3.5 billion euros ($4.77 billion) of three-year loans next week that they had borrowed through the so-called Longer-Term Refinancing Operations, down from 137.2 billion euros at their first opportunity to pay back the funds this week.

The ECB, led by President Mario Draghi, will meet on Feb. 7 to set interest rates. Policy makers will keep their benchmark rate unchanged at record-low 0.75 percent, according to a Bloomberg survey.

The Bank of England will maintain its asset purchase facility at 375 billion pounds and the main interest rate at 0.5 percent the same day, separate Bloomberg surveys show.

RBS Prediction

Royal Bank of Scotland said Draghi’s comments at next week’s policy meeting may temporarily halt the euro’s advance.

“Recently the euro has rallied on LTRO withdrawal” and measures to contain the region’s debt crisis, Greg Gibbs, a senior currency strategist at RBS in Singapore, wrote in a note to clients. “The risk is now that the market has built all this in and that Draghi may shift to noting risks to the economic outlook.”

Gilts advanced, reversing an earlier decline, after Labor Department figures showed the U.S jobless rate rose to 7.9 percent from 7.8 percent and employers added 157,000 jobs last month following a revised 196,000 increase in December. Median estimates in Bloomberg surveys forecast the unemployment rate to hold at 7.8 percent and for payrolls to increase by 165,000.

The 10-year gilt yield dropped one basis point, or 0.01 percentage point, to 2.08 percent. The 1.75 percent bond maturing in September 2022 advanced 0.1, or 1 pound per 1,000- pound face amount, to 97.10. The rate earlier climbed to 2.12 percent. It was little changed on the week.

Gilts have lost 1.9 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds dropped 1.8 percent and Treasuries fell 0.9 percent.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

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


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