Pound Has Biggest Weekly Drop in Three Months as Data Disappoint

The pound had its biggest weekly decline against the dollar in three months as reports showed U.K. inflation slowed, the unemployment rate increased and retail sales declined.

Sterling dropped from a four-year high versus the U.S. currency as the data damped speculation the Bank of England is moving closer to raising interest rates. The pound’s decline was tempered as Vodafone Group Plc (VOD) completed the sale of its 45-percent stake in Verizon Wireless, fueling bets this will lead to an inflow into the British currency. U.K. government bonds rose for the first time in three weeks.

“We’ve had soft U.K. data this week, which we haven’t seen in a while,” said Lee McDarby, executive director of U.K. corporate foreign-exchange sales at Nomura International Plc in London. “This is reflected by the pound finishing the week lower against the dollar and euro. However, looking further ahead to next week, and with the Vodafone-Verizon deal flow on the horizon, there is a good chance pound-dollar could once again find itself testing the recent four-year highs.”

The pound dropped 0.8 percent this week to $1.6632 as of 5:23 p.m. in London yesterday, the biggest decline since the period ended Nov. 1. It climbed to $1.6823 on Feb. 17, the highest since November 2009. The U.K. currency slid 1 percent to 82.56 pence per euro.

The annual inflation rate slowed to 1.9 percent last month from 2 percent in December, the Office for National Statistics said Feb. 18. The jobless rate climbed to 7.2 percent in the fourth quarter from 7.1 percent in the three months through November, it said the following day. Retail sales including fuel dropped 1.5 percent last month, after gaining 2.5 percent in December, the statistics office said yesterday.

Rate Predictions

Nomura pushed back its prediction for when the Bank of England will raise interest rates to November from August, London-based economist Philip Rush wrote in a Feb. 20 note. There’s limited room for any earlier increase given policy makers’ view of unemployment and productivity, he wrote.

Minutes of the central bank’s Feb. 5-6 meeting released Feb. 19 showed the nine-member Monetary Policy Committee agreed unanimously to keep the Official Bank Rate (UKBRBASE) at an all-time low 0.5 percent, where it has been since March 2009.

Vodafone agreed in September to sell its stake in Verizon Wireless to Verizon Communications for $130 billion. The sale was completed yesterday with stock payments due on Feb. 24 and cash ones on March 4. The amounts will total $23.9 billion in cash and about $58.6 billion in Verizon Communications shares.

Sterling has jumped 5.7 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 2 percent, while the dollar declined 1.1 percent.

The yield on the benchmark 10-year gilt climbed one basis point, or 0.01 percentage point, to 2.78 percent this week. The 2.25 percent bond due in September 2013 gained 0.11, or 1.10 pounds per 1,000-pound face amount, to 95.58.

Gilts returned 1.6 percent this year through Feb. 20, according to Bloomberg World Bond Indexes. Treasuries gained 1.5 percent and German bunds rose 1.8 percent.

To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net

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

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