Pound Strengthens Against Dollar as U.S. Data Trail Estimates

The pound rose against the dollar after U.S. data on leading economic indicators and Philadelphia- area manufacturing trailed estimates.

Sterling gained versus 13 of its 16 major peers after weakening earlier as a report showed U.K. retail sales fell more than analysts predicted last month. An index of U.S. leading indicators unexpectedly declined in March, adding to speculation monetary stimulus will be maintained. Bank of England policy maker Martin Weale said easing inflation may reduce the barrier to more stimulus. U.K. government bonds rose for a second day, with 10-year gilt yields approaching a seven-month low.

“Sterling has held up quite well and we’re seeing the dollar coming under some pressure,” said Ian Stannard, head of European currency strategy at Morgan Stanley Inc. in London. “The dollar is weakening after the Philly Fed data. Going forward sterling looks vulnerable, though.”

The pound gained 0.3 percent to $1.5285 as of 5:04 p.m. London time after falling to $1.5217 yesterday, the lowest since April 4. Sterling was little changed at 85.55 pence per euro.

Sales including fuel dropped 0.7 percent from February when they climbed 2.1 percent, the Office for National Statistics said. The median forecast of 23 analysts in a Bloomberg News survey was for a 0.6 percent contraction.

The pound strengthened 1.2 percent this month, the third- best performer behind the New Zealand dollar and the Swiss franc among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro climbed 0.9 percent and the dollar slipped 0.1 percent.

U.S. Data

The Federal Reserve Bank of Philadelphia’s general economic index dropped to 1.3 from 2 in March. The median forecast of economists surveyed by Bloomberg called for an increase to 3. The Conference Board’s gauge of the outlook for the next three to six months fell 0.1 percent in March after climbing 0.5 percent in the prior two months, the New York-based group said today. The median forecast of economists surveyed by Bloomberg called for a 0.1 percent increase.

Bank of England’s Weale said there’s a risk the U.K. fell into another recession in the first quarter, and signaled easing inflation pressures may reduce the barrier to more stimulus.

“The inflation position, at least from my perspective, has improved somewhat,” Weale said in a Bloomberg interview. There has been a “favorable signal from wages and the other favorable signal very recently has been the news on commodity prices. They certainly make me feel there’s more room for maneuver than there would have been if they hadn’t happened.”

Committee Divided

The BOE’s Monetary Policy Committee has split on the need for more quantitative easing, with Weale siding with the majority this month to keep the target for bond purchases on hold, citing the risks from above-target inflation. With data on April 25 showing whether the U.K. slipped into an unprecedented triple-dip recession in the first quarter, Weale said the report will influence his May policy vote.

Benchmark 10-year gilt yields dropped three basis points, or 0.03 percentage point, to 1.66 percent. The rate dropped to 1.63 percent on April 8, matching the April 5 low, which was the least since Sept. 5.

“There’s a case for the Bank of England to further loosen monetary policy given the weakness of the economy, and that should continue to keep gilt yields at low levels,” said Robin Marshall, a director of fixed income at Smith & Williamson Investment Management in London.

The Debt Management Office auctioned 2.25 billion pounds of 3.25 percent gilts due in January 2044 at an average yield of 3.121 percent, compared with 3.42 percent when the government sold the securities through banks on Jan. 29. The yield fell two basis points from yesterday to 3.09 percent.

Gilts returned 1.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Treasuries and German bonds both gained 0.8 percent.

To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; 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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