The pound declined for a fourth week against the euro as an improvement in German business confidence and speculation the Bank of England will boost stimulus sapped demand for the U.K. currency.
Sterling headed for its biggest weekly drop versus the euro in three months as data this week showed British retail sales unexpectedly fell in April and inflation slowed more than economists forecast. U.K. policy makers must continue to provide support to the economy to rebuild confidence, Bank of England Markets Director Paul Fisher said in a speech today. U.K. government bonds rose.
“We’ve had better data on the euro side with the German Ifo,” said Steve Barrow, head of Group-of-10 research at Standard Bank Plc in London. “The U.K. data flow has really damaged sterling this week, maybe a little more than expected.”
The pound rose 0.2 percent to 85.42 pence per euro at 5:01 p.m. London time after sliding to 85.97 pence, the weakest level since April 17. The U.K. currency has dropped 1 percent this week, the most since the period ended Feb. 22. Sterling was little changed at $1.5121 after dropping to $1.5014 yesterday, the lowest since March 14.
Sterling pared its weekly loss versus the euro today as a German gross-domestic-product report showed construction activity and investment both dropped in the first quarter.
“The trade situation in German first-quarter GDP was poor, as was investment,” said Melinda Burgess, a currency strategist at Royal Bank of Scotland Plc in London. “There are still worries around the economy.”
The Ifo institute’s German business climate index, based on a survey of 7,000 executives, climbed to 105.7 from 104.4 in April. Economists predicted it would remain unchanged, according to a Bloomberg News survey.
The pound has weakened 3 percent this year, the second-worst performer after the yen among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 5.1 percent and the euro rose 2.7 percent.
Fisher, speaking to reporters in Cardiff, Wales, repeated his proposal for a potential prolonged period of “slow” bond purchases, or quantitative easing, tied to the economic outlook.
“We should be doing a slow amount of QE over a period of time,” he said after an event hosted by the Cardiff Breakfast Club. “Twenty-five billion pounds over three months is a slow rate, so that would be what you’d kick off with and then you would stop when conditions were looking a lot better.”
The benchmark 10-year gilt yield fell two basis points, or 0.02 percentage point, to 1.90 percent. The 1.75 percent bond due in September 2022 gained 0.125, or 1.25 pounds per 1,000-pound face amount, to 98.755.
U.K. gilts handed investors a loss of 1.8 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds dropped 1.1 percent and Treasuries fell 1.4 percent.