The pound weakened versus the dollar on speculation a rally that took Britain’s currency to a five-year high may fade as the Federal Reserve moves toward raising interest rates.
Sterling also declined after data showed bullish bets as measured by the Commodity Futures Trading Commission had climbed to the highest level since 2007, reducing the potential for fresh buying impetus. While all 47 economists surveyed by Bloomberg predict the U.K. central bank will leave its benchmark rate at a record-low 0.5 percent on July 10, derivatives markets show investors are betting they’ll rise by February. The Fed is winding down its bond-buying program.
“Against the dollar we’re probably about as far as we’re going to go because the risk here is the Fed’s going to have to start raising rates as well,” Jim McCormick, global head of asset-allocation research at Barclays Plc in London, said in an interview on Bloomberg Television’s “Countdown” with Anna Edwards and Ryan Chilcote.
Sterling fell 0.2 percent to $1.7131 at 4:38 p.m. London time after rising to $1.7180 on July 4, the highest level since October 2008. It rose 0.7 percent last week, completing the longest run of weekly gains since the period ended Sept. 21, 2012. The pound slipped 0.3 percent to 79.43 pence per euro after touching 79.15 pence earlier today, the strongest level since September 2012.
Speculation that the Bank of England will be the first major central bank to increase rates helped the pound strengthen 11 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 1.5 percent, while the dollar fell 4.9 percent.
Goldman Sachs Group Inc. yesterday brought forward its forecast for the Fed to raise interest rates after U.S. employers added more jobs than economists estimated last month. Payrolls increased by 288,000 workers in June, compared with the 215,000 projected by a Bloomberg News survey of analysts, data published on July 3 showed.
Futures traders see a 51 percent chance Fed officials will raise the key rate from near zero by June 2015, fed funds futures show. That’s up from 44 percent on the day before the payrolls report.
Forward contracts based on the sterling overnight interbank average, or Sonia, show investors are betting the U.K.’s benchmark rate will increase 25 basis points by February. BOE officials last raised borrowing costs in July 2007.
Bets by hedge funds and other large speculators on an advance in the pound exceeded those wagering on a decline by 56,412 contracts on July 1, the most since December 2007 and up from 49,751 a week earlier, CFTC data published July 4 show.
The pound’s ability to sustain recent gains is an “issue,” according to Geoffrey Yu, a senior currency strategist at UBS AG in London. Sterling will peak at around $1.73 before “correcting lower” toward $1.60 by year-end, he said in a Bloomberg Television interview with Olivia Stearns.
Industrial production rose 0.3 percent in May after increasing 0.4 percent the previous month, according to the median forecast of economists in a Bloomberg survey before the data is released tomorrow.
U.K. 10-year government bond yields fell three basis points, or 0.03 percentage point, to 2.73 percent. The price of the 2.25 percent security due in September 2023 rose 0.21, or 2.10 pounds per 1,000-pound face amount, to 96.125. The rate on two-year notes was little changed at 0.89 percent.
Gilts returned 3 percent this year through July 4, the worst-performing European sovereign-debt market, according to Bloomberg World Bond Indexes. Treasuries earned 2.7 percent and German securities gained 4.7 percent.