Pound Slides for Third Day Amid Bets Economy Can’t Sustain Gains

The pound slipped for a third day versus the dollar amid speculation U.K. economic data due this week won’t be strong enough to sustain gains that propelled it to a one-month high.

Sterling weakened to a two-month low versus the euro before data economists said will show house-price growth and manufacturing expansion slowed this month. A gauge of whether economic data is beating forecasts dropped to the lowest level in two weeks. Britain’s gross domestic product grew 0.8 percent in the third quarter, the most since 2010, the government said last week. Ten-year gilt yields were about one basis point from the lowest level since August.

“The economy is recovering but we would be getting ahead of ourselves to suggest there’s an explosion in growth,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There’s a lot of good news already in the price of the pound and it will take something significant to push it higher.”

The pound fell 0.6 percent to $1.6050 at 4:11 p.m. London time after rising to $1.6257 on Oct. 23, the highest level since Oct. 1. Sterling depreciated 0.4 percent to 85.74 pence per euro after reaching 85.85 pence, the weakest since Aug. 29.

A gauge of U.K. home prices rose 0.7 percent in October after increasing 0.9 percent a month earlier, Nationwide Building Society will say, according to a Bloomberg News survey of economists before the data is released on Thursday.

Manufacturing Index

An index based on a survey of purchasing managers in the manufacturing industry fell to 56.4 this month from 56.7 in September, a separate Bloomberg survey showed before London-based Markit Economics releases the data on Friday. A reading above 50 indicates expansion.

The pound extended its losses against the euro after European Central Bank Governing Council member Ewald Nowotny was reported to say it’s unlikely the central bank will lower interest rates, underpinning demand for the shared currency.

“I do not think that having a negative deposit rate is a realistic perspective, but I also do not see a realistic perspective of lowering the main policy rate,” Nowotny said, according to a report from Market News International. Policy makers “have to live with” a strengthening euro, he said.

The pound gained 3 percent in the past three months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 2 percent, while the dollar fell 2.1 percent.

Mortgage Lending

U.K. lenders granted 66,735 mortgages, the most since February 2008, compared with a revised 63,396 the previous month, the Bank of England said in London. Annual house-price inflation accelerated to 3.1 percent in October, the most since November 2007, London-based property researcher Hometrack said yesterday.

“The economic data is looking firmer again, but it seems that the market is looking for something more than that before it really starts to pay attention,” said Lee McDarby, executive director of U.K. corporate foreign-exchange sales at Nomura International Plc in London. The pound “remains stable just above $1.60. Sterling at the end of the first week of November should give us a better idea of what winter has in store.”

The Citigroup U.K. Economic Surprise Index slid nine percentage points to 30.7 yesterday, the lowest level since Oct. 15. The gauge, which shows whether data beat or fell short of economists’ forecasts, dropped to 20.9 on Oct. 14, the lowest level since June 19.

Islamic Bonds

Benchmark 10-year gilt yields were little changed at 2.60 percent after declining to 2.59 percent, the lowest level since Aug. 27. The price of the 2.25 percent bond maturing in September 2023 was at 96.965.

Prime Minister David Cameron said today the U.K. plans to become the first country outside the Muslim world to sell a Shariah-compliant security. The Islamic bonds, known as sukuk, may be sold as soon as next year and would be valued at about 200 million pounds, Cameron said at the World Islamic Economic Forum in London.

“For years people have been talking about creating an Islamic bond -- or sukuk -- outside the Islamic world, but it’s never quite happened,” the prime minister said. “Changing that is a question of pragmatism and political will. And here in Britain we have got both. This government wants Britain to become the first sovereign outside the Islamic world to issue an Islamic bond.”

The Debt Management Office plans to auction 1.25 billion pounds of inflation-linked bonds maturing in March 2052 on Nov. 5, it said in a statement today.

Gilts lost 2.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries fell 1.8 percent and German securities declined 1.4 percent.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

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

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