The pound fell from near a two-week high against the dollar after an index of U.S. leading economic indicators climbed more than forecast in July, underlining the U.S. economy’s outperformance of its U.K. counterpart.
Gilts snapped four days of gains after Bank of England Markets Director Paul Fisher told the Financial Times that the central bank’s program of buying bonds to stimulate the economy can be adjusted depending on the effectiveness of recent credit- boosting measures. Sterling headed for a weekly decline against the euro after research group Oxford Economics Ltd. said financial services firms may cut about 3,000 jobs in London.
“The pound can’t maintain its recent gain against the dollar after the better-than-expected sentiment data in the U.S.,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “I am short sterling at these sort of levels because I think the U.S. economy will outperform the U.K.” A short position is a bet that an asset will fall.
Britain’s currency fell 0.3 percent to $1.5693 at 4:59 p.m. London time, and was little changed over the week. It reached $1.5745 yesterday, the strongest level since July 30. Sterling advanced 0.1 percent to 78.47 pence per euro, trimming its weekly decline to 0.2 percent.
The U.S. Conference Board’s gauge of the outlook for the next three-to-six months increased 0.4 percent after a revised 0.4 percent drop in June, the New York-based group said today. Economists projected the gauge would rise by 0.2 percent, according to the median estimate in a Bloomberg survey.
Even as it fell against the dollar, sterling has risen 0.3 percent in the past week, according to Bloomberg Correlation- Weighted Indexes, which track 10 developed-market currencies. The dollar also added 0.4 percent and the euro jumped 0.3 percent.
The pound climbed and gilts fell this week as reports showed retail sales unexpectedly increased and jobless claims fell in July, adding to evidence that the U.K. economic slump may be less pronounced than estimated. Updated second-quarter gross domestic product data is due to be released on Aug. 24.
The U.S. economy will expand 2.1 percent this year, according to the median estimate of economists surveyed by Bloomberg. U.K. gross domestic product will decline 0.3 percent, a separate survey predicts.
The 10-year gilt yield fell two basis points to 1.67 percent, after climbing 15 basis points, or 0.15 percentage point, in the past four days.
Bank of England policy maker Martin Weale said in an interview published yesterday that the U.K. economy is performing better than official data suggests.
“I would say that the general mood is that there is an underlying sense of confidence,” Weale said in interview published in the Birmingham Mail. “The economy is stagnating, but I have not heard people say ‘this is a disaster.’ Rather than describe it as a double-dip recession, I would describe it as a sustained period of stagnation.”
The London-based central bank’s Funding for Lending Scheme, aimed at encouraging banks to extend credit, is meant to work in harmony with quantitative easing, Fisher told the Financial Times.
The FLS is designed to boost credit to companies and households. It will allow banks to borrow treasury bills from the central bank, which they can use as collateral to fund lending.
U.K. government bonds have returned 2.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds earned 2.8 percent and U.S. Treasuries rose 1.1 percent.
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