The pound fell for the first time in five days against the dollar amid speculation a rally that pushed it to a nine-month high this week was excessive.
Britain’s currency dropped the most in two weeks versus the euro after Bank of England Governor Mark Carney said yesterday policy makers won’t consider raising interest rates until the economic recovery is assured. U.K. government bonds were little changed as Debt Management Office sold 4 billion pounds ($6.47 billion) of the securities at an auction. Reports today showed U.K. service industries expanded and house prices rose.
“The pound is toppish at these levels,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Copenhagen. “There’s nothing different in the U.K. story. It’s just risen about as far as it can on the news we’ve had. I don’t think it will move massively lower soon, but it probably won’t continue to rally.”
The pound dropped 0.4 percent to $1.6164 at 4:33 p.m. London time after rising to $1.6260 on Oct. 1, the highest level since Jan. 2. The U.K. currency weakened 0.7 percent to 84.31 pence per euro, the biggest decline since Sept. 19.
Sterling has strengthened 6.9 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 6 percent and the dollar slid 0.7 percent.
Bank of England policy makers, who meet next week, have said they will keep interest rates at a record low of 0.5 percent at least until unemployment drops to 7 percent. The jobless rate was 7.7 percent in the second quarter, the Office for National Statistics said Sept. 11.
“We’re not going to begin to think about raising interest rates or tightening monetary policy until we see the conditions in the economy where the economy is really growing,” Carney said in an interview with ITV Anglia broadcast yesterday.
A gauge of services activity based on a survey of purchasing managers was at 60.3 last month after increasing to an almost seven-year high of 60.5 in August, Markit Economics said in London. House prices climbed 0.3 percent in September, matching the result in August, which was revised down from 0.4 percent, according to Halifax, the mortgage unit of Lloyds Banking Group Plc.
“Investors had been buying sterling as the data proved to be supportive,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The question now is how long can that last?”
The benchmark 10-year gilt yield was at 2.70 percent after falling to 2.67 percent on Sept. 30, the lowest level since Aug. 27. The price of the 2.25 percent bond maturing in September 2023 was 96.125.
The Debt Management Office sold 10-year gilts at an average yield of 2.742 percent, down from 2.976 at the previous auction on Sept. 12. Investors submitted bids for 1.84 times the amount sold, versus 1.59 last month.
Gilts lost 2.8 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bunds dropped 1.6 percent and Treasuries fell 2.4 percent.