The pound weakened to a seven-month low against the dollar after Bank of England policy maker Martin Weale endorsed the currency’s decline, saying it may help bolster exports.
Sterling dropped for the first time in three days versus the euro amid speculation central bank minutes to be released this week may echo those from January, which said sterling’s real exchange rate was above the level needed to help the economy rebalance. Futures traders scrapped bets the pound would strengthen, data from the Washington-based Commodity Futures Trading Commission showed. Gilts were little changed.
“Investors are struggling to have faith in sterling,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “Investors are seeing an economy which is possibly entering another recession and is likely to see inflation holding above target. The central bank is also wanting to see the currency lower. Weale’s comments were a fresh piece of evidence.”
The pound fell 0.4 percent to $1.5464 at 5:02 p.m. London time after sliding to $1.5438, the lowest level since July 13. Sterling weakened 0.3 percent to 86.34 pence per euro after declining 1.8 percent last week.
The slide in sterling will probably help reduce external imbalances, Weale said in a Feb. 16 speech at the Warwick Economics Summit in Coventry, England.
“It may be that high levels of uncertainty and a reluctance to take on new risks have stood in the way of exporters seeking new markets and domestic producers doing what is needed to displace imports,” he said. “Provided the calmer atmosphere we have seen since the summer is sustained, we may see further benefits of the depreciation.”
The pound has tumbled 4.5 percent this year, the second-worst performer after the yen among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.9 percent and the euro rose 2.2 percent.
“Weale’s speech is in line with our bearish view on sterling,” Mansoor Mohi-uddin, head of foreign-exchange strategy at UBS AG in Singapore, wrote in a note to clients. “This is a clear message from Weale that further currency weakness is both likely and desirable.”
The Bank of England will release the minutes of its Feb. 7 meeting on Wednesday. In the previous minutes published on Jan. 23, policy makers said “the sterling real exchange rate might be above the level compatible with the necessary rebalancing of the economy.”
Investors should use any rally in the pound before the minutes are released as a chance to sell the currency, Jane Foley, a senior foreign-exchange strategist at Rabobank International in London, wrote in a note to clients. There is “greater scope” for sterling to underperform the euro than the dollar, she wrote.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those on a gain -- so-called net shorts -- was 16,776 on Feb. 12, compared with net longs of 1,174 a week earlier. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange.
The 10-year gilt yield closed at 2.20 percent after climbing to 2.27 percent on Feb. 14, the highest level since April 2. The price of the 1.75 percent bond due in September 2022 was 96.185.
U.K. government bonds have lost 2.8 percent this year through Feb. 15, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds dropped 1.6 percent and Treasuries declined 0.9 percent.
The U.K. securities slid 0.8 percent in the past five days, the worst performers of 26 sovereign debt markets tracked by the indexes. On a dollar-denominated basis, they fell 2.6 percent.