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Pound Falls Most in Three Weeks Versus Dollar as Output Declines

April 2 (Bloomberg) -- The pound fell the most in three weeks against the dollar after an industry report showed U.K. manufacturing output shrank more than economists forecast, adding to concern the nation is headed for another recession.

The U.K. currency declined versus all 16 of its major counterparts on speculation the slowdown signs will convince the Bank of England to increase stimulus at a policy meeting this week. Minutes of its last two gatherings showed three members of the Monetary Policy Committee voted to increase the asset-purchase target from 375 billion pounds ($568 billion). U.K. government bonds were little changed.

“The manufacturing data has been poor but expectations were poor as well,” said Peter Kinsella, a currency strategist at Commerzbank AG in London. “The pound has rallied a little bit recently. This is the third time we’ve struggled to break above $1.5250 in a meaningful way. Selling rallies in pound-dollar is a good idea.”

The pound weakened 0.8 percent to $1.5115 at 4:27 p.m. London time, the biggest decline since March 8. Sterling dropped 0.7 percent to 84.92 pence per euro after appreciating to 84.11 pence yesterday, the strongest level since Jan. 24.

A gauge of U.K. manufacturing based on a survey of purchasing managers was 48.3 in March from 47.9 in February, Markit Economics and the Chartered Institute of Purchasing and Supply said. Economists surveyed by Bloomberg forecast a reading of 48.7, still below the level of 50 that shows contraction.

Approvals Decline

Mortgage approvals fell more than economists forecast in February, a separate report showed. U.K. lenders granted 51,653 home loans, the least since September, compared with a revised 54,187 in January, the Bank of England said in London.

The pound has tumbled 5.1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro fell 0.2 percent and the dollar gained 2.8 percent.

Gilts rose in earlier trading as officials in Cyprus said they would seek easier bailout terms in talks with the European Union and International Monetary Fund, underpinning demand for the safety of U.K. government securities.

Cypriot Finance Minister Michael Sarris quit today amid a probe into the nation’s economic crisis, leaving the government eight days after it obtained an international bailout.

`Less Optimistic'

“People are less than optimistic on the U.K. at the moment,” said Simon Peck, a fixed-income strategist at Royal Bank of Scotland Group Plc in London. “There’s also a policy meeting this week so the time is ripe for more speculation on potential further quantitative easing. What’s going on in Cyprus is also helping safe-haven flows and the bid for gilts.”

The 10-year gilt yield was at 1.77 percent after dropping as much as three basis points. The 1.75 percent bond due in September 2022 traded at 99.81.

The Bank of England will keep its target for so-called quantitative easing at 375 billion pounds when policy makers announce the decision on April 4, according to the median forecast of 37 economists surveyed by Bloomberg. Three predict it will increase that amount to 400 billion pounds.

Gilts have returned 0.7 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 0.4 percent and Treasuries were little changed.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

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

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