The pound fell to a three-week low versus the dollar after a gauge of U.K. house prices declined in December, fueling speculation the economic recovery is losing momentum.
Sterling weakened for the first time in three days versus the euro as Citigroup Inc.’s economic surprise index for the U.K. slid to a six-week low. The gauge has been below zero for four days, signaling data has been falling short of analyst’s forecasts. U.K. government bonds advanced as demand increased at a sale of 30-year gilts.
“Positive momentum in U.K. data seems to be slowing,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “We’ve even seen it in the housing data overnight. We’re looking for a bigger move down in the pound to the $1.6120 area over the next few weeks.”
The pound fell 0.2 percent to $1.6340 at 4:33 p.m. London time after dropping to $1.6315, the lowest level since Dec. 25. The U.K. currency weakened 0.2 percent to 83.24 pence per euro after depreciating to 83.49 pence on Jan. 13, the weakest level since Jan. 1.
The Royal Institution of Chartered Surveyors said its measure of U.K. house prices declined to 56 from 58 in November, citing a survey of property surveyors. A gauge of expectations for prices in three months climbed to the highest since 1999.
The Citigroup U.K. surprise index dropped to minus 9.3, the lowest since Dec. 2. The gauge has fallen from a two-month high of 10.7 on Jan. 9. A negative reading means data releases have been weaker than economists’ forecasts.
The pound has dropped 0.9 percent in the past week, the worst performer after the Australian dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro and the dollar were little changed.
The Debt Management Office sold 2 billion pounds of 30-year gilts at an average yield of 3.59 percent compared with 3.609 percent at the previous auction on Nov. 28. Investors bid for 1.88 times the amount allotted, up from 1.67 times in November.
“It’s a pretty solid auction with good demand,” said Simon Peck, a U.K. rates strategist at Royal Bank of Scotland Group Plc in London. “The gilt market is performing very well in the 10-year sector and outperforming bunds a little.”
The 10-year gilt yield dropped five basis points, or 0.05 percentage point, to 2.81 percent, the lowest level since Dec. 3. The 2.25 percent bond due September 2023 gained 0.44, or 4.40 pounds per 1,000-pound face amount, to 95.305.
The 30-year yield fell three basis points to 3.56 percent.
Gilts handed investors a loss of 2.1 percent in the 12 months through yesterday, according to Bloomberg World Bond Indexes. Treasuries declined 2.5 percent and German bunds dropped 0.3 percent.
The pound’s world-beating six-month rally is poised to reverse, trading patterns show, after Bank of England Governor Mark Carney ruled out an imminent increase in interest rates to preserve Britain’s recovery.
Carney has damped expectations for the timing of an increase in U.K. borrowing costs, telling lawmakers yesterday he’ll consider the impact on growth before raising the key rate from 0.5 percent. Sterling’s rally from a three-year low of $1.4814 in July has been supported by three quarters of continuous growth and the unemployment rate falling toward the 7 percent threshold set last year as the point where the central bank may raise its benchmark.
“The Bank of England are emphasizing that interest rates are not the tool at the moment,” John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Copenhagen, said yesterday in a telephone interview. “On the downside, $1.6250 is a big area for the pound. If we get through there, we could be headed toward $1.58.”