Pound Declines Against the Dollar, Euro on Signs Economic Recovery Slowing

The pound fell for a fourth week against the dollar, the longest run of losses since June, as reports showing that U.K. services grew at a slower pace and house prices dropped fueled concern the recovery will falter.

Sterling declined for a third week against the 16-nation euro. Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply forecast said yesterday their index of U.K. services activity dropped to 51.3 from 53.1 in July, the lowest since April 2009. Economists had predicted a drop to 52. The average home price dropped the most in six months in August, a report showed on Sept. 2.

“Sterling looks to be coming off its sweet spot,” said Gavin Friend, a markets strategist at National Australia Bank in London. “Ahead of these numbers, the market was starting to say this is as good as it gets.”

The U.K. currency dropped 05 percent in the week and was at $1.5445 as of 5:15 p.m. in London yesterday. It fell to $1.5327 on Aug. 31, the lowest level since July 23. The pound was at 83.41 pence per euro, leaving it 1.5 percent weaker since Aug. 27.

While the U.K. economy grew at the fastest pace since 2001 in the second quarter, there are signs the recovery is moderating as the government cuts spending to reduce the budget deficit. Growth in manufacturing and construction slowed in August, data showed earlier in the week.

The currency may extend losses before the central bank’s interest rates decision next week. The London-based Bank of England will keep its benchmark interest rate at a record low 0.5 percent and maintain its asset purchases at 200 billion pounds on Sept. 9, according to economists surveyed by Bloomberg.

‘Feel the Heat’

“Sterling continues to feel the heat from weaker U.K. numbers this week,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London.

Government bonds declined, with the 10-year gilt yield rising to 3.01 percent from 2.91 percent on Aug. 27. The two- year yield increased three basis points in the week to 0.71 percent.

Gilts returned 4.7 percent last month, according to Bank of America Merrill Lynch indexes, the most since December 2008, as the safest assets rallied on concern the U.S. recovery is faltering,

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Keith Jenkins in London at Kjenkins3@bloomberg.net

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