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Pound Drops Against Dollar as Housing, Retail Data Signal Growth Slowing
The pound fell against the dollar to its lowest level in more than a week after data signaled Britain’s economic recovery may be slowing.
Sterling also dropped versus the yen after a U.K. housing- market gauge showed the first decline in prices in a year in July, while a separate survey said stores posted slower sales growth last month. The Bank of England is scheduled to publish its quarterly Inflation Report tomorrow. Thirty-year government bonds declined after a sale of 1.75 billion pounds ($2.8 billion) of gilts due in 2034.
“Recent U.K. data hasn’t been impressive and we expect the BOE to revise down its growth projections,” said John Hydeskov, senior currency analyst at Danske Bank A/S in Copenhagen. “Sterling has been overbought in recent weeks and we should have a correction.”
The pound fell 1 percent to $1.5738 as of 3:48 p.m. in London after reaching $1.5711, the lowest level since Aug. 2. It was 0.9 percent lower at 135.28 yen. The U.K. currency was little changed at 83.14 pence per euro.
Hydeskov advised investors yesterday to sell the British currency against the Norwegian krone in a bet it will weaken to 9.10. The pound rose 0.3 percent to 9.5398 kroner today.
While the U.K. economy expanded at the fastest pace in more than four years in the second quarter, Bank of England Governor Mervyn King said last month there are risks from a possible slowdown in the euro-area. Policy makers may lower their U.K. growth forecasts tomorrow after keeping the emergency stimulus plan unchanged last week, according to economists in a Bloomberg News survey.
The U.S. Federal Open Market Committee is also due to publish its decision on interest rates today.
Retail Sales
A British Retail Consortium survey today showed retail sales values rose an annual 0.5 percent in July, compared with a 1.2 percent increase in June.
The number of real-estate agents and surveyors saying U.K. prices fell exceeded those reporting gains by 8 percentage points last month, compared with a positive reading of 8 in June, the Royal Institution of Chartered Surveyors said. Savills Plc, the London-based property broker, said in a separate report today that the gain in house prices during the first half will prove to be a “sucker’s rally.”
Inflation Outlook
The Bank of England may lower its forecast for 2011 economic growth in its quarterly Inflation Report tomorrow, according to 14 of 16 economists surveyed by Bloomberg News. Two of the economists say policy makers will cut their 2010 forecast, with 10 predicting no change and four expecting an increase. The bank will also publish new inflation forecasts.
“All of a sudden the pound is looking very soft,” Lee McDarby, a trader at Investec Plc’s treasury-solution unit in London, said in a note to clients today. “With inflation figures still to come tomorrow, this week promises to be a true test of sterling’s resolve.”
The yield on the short-sterling futures contract due in September 2011 fell one basis point to 1.23 percent, signaling investors were adding to bets the central bank will keep interest rates lower for longer.
Sterling has gained 11 percent against the dollar from the lowest level this year of $1.4231, reached on May 20, on speculation Prime Minister David Cameron’s coalition government will control the nation’s budget deficit without stunting economic growth. Britain’s trade deficit narrowed more than economists forecast in June as data from the Office for National Statistics today showed exports rose to a two-year high.
Government Bonds
The yield on 30-year U.K. government bonds rose three basis points to 4.22 percent and the 10-year gilt yield increased one basis point to 3.26 percent.
Britain sold 1.75 billion pounds of 4.5 percent bonds maturing in 2034 today for an average yield of 4.2 percent, with investors bidding for 1.56 times the bonds on offer. The government last sold the 2034 bonds on June 3 for an average yield of 4.327 percent and with a 1.87 bid-to-cover ratio.
“The cover, given the small size of the sale, was quite disappointing,” said Marc Ostwald, a London-based fixed-income strategist at Monument Securities Ltd. in London. “But there are plenty of uncertainties, so I wouldn’t want to draw any conclusions on underlying demand.”
The auction of 3 billion pounds of 4 percent bonds due in 2022 in two days’ time may provide a better guide of investor appetite, Ostwald said.
To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net
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