The pound dropped the most in a week against the dollar after U.K. mortgage approvals declined more in June than economists forecast, adding to signs Britain’s recession is deepening.
Sterling fell from near a five-week high against the U.S. currency after Hometrack Ltd. said British house prices decreased for the first time this year in July and may extend their decline as the economy weakens. U.K. government bonds dropped for a third day.
“Data-wise, things are still looking weak as far as the U.K. is concerned and the medium-term picture is very bearish for sterling,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “Weak fundamentals suggest sterling will remain under pressure.”
The pound declined 0.4 percent to $1.5690 at 4:23 p.m. London time after dropping as much as 0.5 percent, the biggest intraday decline since July 23. The U.K. currency strengthened 0.2 percent to 78.07 pence per euro.
U.K. lenders granted 44,192 loans to buy homes, the lowest since December 2010, and down from a revised 50,544 in May, the Bank of England said. The median forecast in a Bloomberg News survey of economists was for a drop to 48,000. Home values slipped 0.1 percent from June, when they stagnated, Hometrack said. A measure of demand fell the most in six months.
Sterling has risen 4.4 percent in the past year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar gained 10 percent and the euro weakened 7.4 percent.
The pound will find so-called support at $1.5577, which is the 62 percent retracement of its rally from July 25 to July 27, according to Richard Adcock, a technical analyst at UBS AG in London. Support refers to an area on a price graph where analysts anticipate buy orders may be clustered.
The 10-year gilt yield rose one basis point, or 0.01 percentage point, to 1.54 percent after dropping to a record 1.407 percent on July 23. The 4 percent bond maturing in March 2022 fell 0.08, or 80 pence per 1,000-pound face amount, to 121.84.
U.K. government bonds have returned 16 percent in the past year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 11 percent and Treasuries rose 9 percent.
The Bank of England will announce its next monetary-policy decision on Aug. 2. The central bank increased its asset-purchase target by 50 billion pounds to 375 billion pounds and kept its key interest rate at 0.5 percent at its previous meeting on July 4-5.
The median forecast of 40 economists surveyed by Bloomberg is for asset purchases to be left unchanged at 375 billion pounds at this week’s gathering. Scotiabank Europe Plc changed its forecast this week to an increase, according to an e-mailed statement today.