The pound dropped for a sixth straight day against the euro, the longest losing streak since October, as a government report showed U.K. manufacturing production unexpectedly declined in November.
Sterling weakened versus the dollar as the National Institute of Economic and Social Research estimated Britain’s economy contracted 0.3 percent in the fourth quarter. The U.K. currency slumped the most in four months versus the 17-member common currency after European Central Bank President Mario Draghi said yesterday the euro-area economy will slowly return to health in 2013 as the region’s bond markets stabilize. U.K. gilts were little changed.
“The data today was really quite depressing,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The fundamentals were bad last year but sterling picked up its bid on the back of the euro-zone crisis. Assuming that we continue to get this lull, I think sterling’s fundamentals will undermine it.”
The pound depreciated 0.8 percent to 82.74 pence per euro at 4:29 p.m. London time, after reaching 82.87, the weakest level since April 4. It fell as much as 1 percent, the biggest intraday drop since Sept. 7. Sterling slipped 0.2 percent to $1.6129, headed for its first weekly tumble since the period ended Dec. 14.
The U.K. currency slid against most of its 16 major peers tracked by Bloomberg after data showed factory output declined 0.3 percent from October, when it dropped 1.3 percent. The median forecast of 24 economists in a Bloomberg News survey was for a 0.5 percent gain. Total industrial production rose 0.3 percent, also less than forecast.
U.K. gross domestic product stagnated last year, the NIESR said in an e-mailed statement today. The institute’s clients include the Bank of England and the U.K. Treasury.
The pound has fallen 1.3 percent since the start of 2013, the second-worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen dropped 3.4 percent and the dollar lost 0.4 percent, while the euro gained 0.9 percent.
“We have signs that fragmentation is being gradually repaired,” Draghi told reporters in Frankfurt yesterday after the ECB kept its key interest rate at 0.75 percent. “We spoke a lot about contagion when things go poorly but I believe there is a positive contagion when things go well. And I think that’s also what is in play now. There is a positive contagion.”
Sterling extended its slide against the euro after Goldman Sachs Group Inc. said investors should buy the common currency versus the dollar, citing “compression in euro-area risk premia.” Strategists including London-based Thomas Stolper made the recommendation in an e-mailed note to investors today.
The 10-year gilt yield fell two basis points, or 0.02 percentage point, to 2.08 percent, after climbing seven basis points yesterday. The 1.75 percent bond due in September 2022 changed hands at 97.16.
Gilts handed investors a loss of 1.9 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds dropped 1.5 percent and Treasuries fell 0.6 percent.