The pound slid for a fifth day against the dollar after a report showed U.K. manufacturing expanded less in January than economists had forecast.
Sterling tumbled against all but two of its 16 major peers as investors bet Bank of England officials will commit to keeping interest rates lower for longer in their quarterly Inflation Report on Feb. 12. The pound weakened the most since March versus the euro as Hometrack Ltd. data showed a measure of U.K. house prices rose 0.3 percent in January after climbing 0.5 percent a month earlier. U.K. government bonds erased a decline.
“The data that we’ve had since the start of the year have been good but many people have been disappointed it hasn’t been better,” said Jane Foley, senior currency strategist at Rabobank International in London. “That’s taken some of the froth out of expectations for performance of the U.K. economy and sterling.”
The pound fell 0.7 percent to $1.6322 at 4:24 p.m. London time after sliding to $1.6319, the lowest level since Jan. 17. The five-day decline is the longest losing streak since the period ended Dec. 17. Sterling weakened 1.1 percent to 82.91 pence per euro, the biggest drop since March 7.
An index of U.K. factory output, based on a survey of purchasing managers, fell to 56.7 last month from a downwardly revised 57.2 in December, Markit Economics and the Chartered Institute of Purchasing and Supply said. The median estimate in a Bloomberg News survey of analysts was 57.3. A reading above 50 indicates growth.
The pound gained 10 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as improving unemployment data fueled speculation that the Bank of England would have to raise rates sooner than it predicted. The euro rose 4.6 percent and the dollar strengthened 5.6 percent in the same period.
Bank of England Governor Mark Carney said in a Jan. 24 speech that the Monetary Policy Committee would consider a “range of options” for updating forward guidance this month.
The U.K. jobless rate slid to 7.1 percent in the three months through November, approaching the 7 percent threshold for the bank to consider increasing interest rates that Carney unveiled in August.
Policy makers will hold a two-day meeting ending Feb. 6 before the publication of the Inflation Report next week.
“With the BOE, there is a small risk that the expected reformulation of the forward guidance policy expected in next week’s Inflation Report could be brought forward to this week’s MPC meeting,” Alvin Tan, director of foreign-exchange strategy at Societe Generale SA in London, wrote in an e-mailed note. “One way or another, keep short pound-dollar,” he recommended. A short position is a bet an asset’s value will fall.
Sterling’s decline through a line on a price graph that passes through its July and January lows may push the currency toward $1.6310, according to Barclays Plc strategists led by Jordan Kotick, head of global technical strategy in New York. A close below that level may signal “a return to $1.5850 in the coming weeks,” the strategists wrote in an e-mailed report today.
The 10-year gilt yield fell one basis point, or 0.01 percentage point, to 2.70 percent after climbing as much as five basis points. The price of the 2.25 percent bond due in September 2023 was 96.245.
The Debt Management Office is scheduled to auction 4 billion pounds of bonds due in July 2019 tomorrow. The U.K. last sold five-year gilts on Dec. 12 at an average yield of 1.994 percent, compared with 1.905 percent at a previous auction on Nov. 21.
The rate on the benchmark five-year gilt due in July 2018 declined two basis points to 1.61 percent today.
U.K. gilts returned 2.1 percent this year through Jan. 31, the biggest monthly increase since July 2012, according to Bloomberg World Bond Indexes. Treasuries earned 1.8 percent and German securities gained 2.1 percent.
To contact the reporter on this story: Lucy Meakin in London at firstname.lastname@example.org