Pound Declines Most in Five Weeks as Outlook for Banks Worsens

April 11 (Bloomberg) -- The pound dropped the most in almost five weeks against the dollar after JPMorgan Chase & Co. said first-quarter profit fell, damping the outlook for the U.K.’s financial industry.

Sterling weakened versus all of its 16 major peers and the FTSE 100 Index of shares slumped 1.2 percent. JPMorgan, the biggest U.S. bank, said net income in the first quarter fell 19 percent on lower revenue from bond trading and mortgages, fueling concern the theme will be repeated across the global financial sector. U.K. 10-year government bond yields dropped to the lowest level since October.

“People are nervous about equities and that doesn’t bode well for growth currencies like the pound,” said Peter Rosenstreich, chief currency analyst at Swissquote Bank SA in Geneva. “This is driven by a global theme and not something U.K. specific.”

The pound dropped 0.3 percent to $1.6732 at 4:48 p.m. in London, the biggest one-day slide since March 10. The decline trimmed its gain since April 4 to 0.9 percent. The U.K. currency weakened 0.4 percent to 83.05 pence per euro. Sterling slid 0.3 percent to 169.94 yen.

The pound is still the best-performing developed-nation currency during the past six months as improved economic data stoked bets the Bank of England will be the first major central bank to increase interest rates. Sterling has gained 4.4 percent in the period, according to Bloomberg Correlation-Weighted Indexes that track 10 currencies. The euro climbed 1.9 percent, while the dollar weakened 0.9 percent.

Growth Doubts

“Investors are starting to question their assumptions for a growth rebound globally,” said Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc. in London. “Generally, it feels that market risk sentiment is starting to look shaky. Sterling tends to weaken against both the euro and dollar during bouts of risk aversion.”

The benchmark 10-year gilt yield fell one basis point, or 0.01 percentage point, to 2.61 percent, after declining to 2.59 percent, the lowest since Oct. 31. The 2.25 percent bond due September 2023 rose 0.095, or 95 pence per 1,000-pound face amount, to 97.035.

Investors should enter a short position, or a bet an asset’s price will fall, on U.K. 10-year gilts, according to Barclays Plc.

“The move toward policy normalization continues with the Bank of England expected to be the first of the major central banks to begin rate normalization” in the second quarter of 2015, Barclays analyst Moyeen Islam wrote in an e-mailed note. U.K. data in the first quarter “have been uniformly strong but, despite this, 10-year rates are at their lows of the year.”

A report today showed house prices in England and Wales rose 7.2 percent in March from a year earlier, the fastest annual gain since September 2010, according to real-estate researcher Acadata and LSL Property Services Plc.

Gilts returned 3.4 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds earned 2.8 percent and Treasuries rose 2.3 percent.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Keith Jenkins, Nicholas Reynolds