The pound slid for the first time in five days against the dollar after a U.S. report showed payrolls increased last month more than economists forecast, boosting demand for the greenback.
Sterling was set for its biggest weekly gain versus the euro since April after the European Central Bank unexpectedly cut its benchmark interest rate yesterday, while the Bank of England maintained its monetary policy. U.K. government bonds fell, with benchmark 10-year gilts headed for a second weekly decline, after a gauge of house prices climbed to a record in October. The U.S. jobs data came as Federal Reserve policy makers weigh reducing their currency-debasing stimulus program.
“It backs up the idea that tapering delay in this type of labor-market condition is not exactly justified,” said Derek Halpenny, European head of global-markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “That’s why cable, along with every dollar cross has moved,” Halpenny said, referring to the pound-dollar exchange rate.
Sterling fell 0.6 percent to $1.5994 at 4:45 p.m. London time, paring this week’s advance to 0.5 percent. The pound slipped 0.2 percent to 83.51 pence per euro after appreciating to 83.01 pence yesterday, the strongest level since Jan. 17. It has gained 1.4 percent against the common currency this week, the most since the period ended April 26.
American employers added 204,000 workers in October from a revised 163,000 gain in September that was larger than initially estimated, Labor Department figures showed today in Washington. The median forecast of 91 economists surveyed by Bloomberg called for a 120,000 advance. The jobless rate rose to 7.3 percent from an almost five-year low of 7.2 percent.
The pound earlier rallied against the euro after Standard & Poor’s downgraded France’s credit rating by one level to AA from AA+ with a stable outlook saying the government’s reform of tax, labor markets, products and services won’t raise medium-term growth prospects.
The total U.K. deficit widened to 9.72 billion pounds from 5.46 billion pounds in the three months through June, the Office for National Statistics said. Exports fell 3.5 percent and imports increased 1 percent to a record 135 billion pounds. Separate data showed construction output fell 0.9 percent in September after climbing a revised 0.1 percent in August.
The Bank of England’s nine-member Monetary Policy Committee yesterday left its asset-purchase target at 375 billion pounds, as predicted by all 46 analysts in a Bloomberg News survey. Officials also kept the benchmark interest rate at a record-low 0.5 percent, as forecast by a separate Bloomberg survey.
The London-based central bank has said it will keep the key rate at a record low until unemployment, currently at 7.7 percent, falls below 7 percent.
Sterling has rallied 5.1 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as improving economic data prompted investors to increase bets the central bank would raise borrowing costs earlier than it predicted. The euro climbed 3.5 percent and the dollar rose 1.7 percent.
Bank of England Governor Mark Carney will present new economic projections next week, with Goldman Sachs Group Inc. among those forecasting the central bank will improve its outlook.
“The momentum of the economy has built up more rapidly than the MPC forecast in August,” Jonathan Pryor, head of foreign-exchange dealing at Investec Corporate Treasury, a unit of Investec Bank Plc, wrote in a note to clients. Next week’s forecasts “will be monitored with serious interest,” he wrote.
The 10-year gilt yield climbed 10 basis points, or 0.1 percentage point, to 2.77 percent. The 2.25 percent bond due in September 2023 fell 0.84, or 8.40 pounds per 1,000-pound face amount, to 95.565. The rate has increased 12 basis points this week.
U.K. gilts lost 2.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 1 percent and U.S. Treasuries declined 2 percent.
To contact the reporter on this story: Emma Charlton in London at email@example.com