The pound weakened for a second day against the euro as data showed U.K. construction output slowed last month more than economists forecast, damping demand for Britain’s currency.
Sterling dropped versus 13 of its major 16 peers Thursday following data earlier in the week that showed manufacturing expansion and a faster pace of economic growth in the fourth quarter of last year. The specter of Britain’s May 7 general election continued to hang over markets, with the leaders of seven political parties due to take part in a televised debate Thursday.
“The data is constructive but the next month or so is going to be pretty challenging for sterling,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The opinion polls continue to tell us that it looks as though it’s going to be an inconclusive election and the subsequent negotiations look as though they are going to be more fraught and long-lasting than the five days we saw in 2010.”
The pound depreciated 1 percent to 73.30 pence per euro at 4:22 p.m. London time, the steepest decline since March 23. Sterling was little changed at $1.4836.
There has been an unexpected rebound in euro-dollar ahead of Friday’s U.S. jobs report which is having an impact on the pound, CIBC’s Stretch said. “I wouldn’t want to be a significant buyer of euro-sterling,” he said. “Euro rallies will probably be relatively temporary.”
The 19-nation common currency gained 1 percent to $1.0875.
A gauge of U.K. construction fell to 57.8 from 60.1 in February, according to Markit Economics Ltd. Analysts in a Bloomberg survey forecast a drop to 59.8. A reading above 50 indicates expansion. Manufacturing output rose in March, Markit said on Wednesday. The previous day data from the Office for National Statistics showed U.K. gross domestic product increased 0.6 percent in the three months through December, up from the 0.5 percent previously estimated.
Price swings in sterling against the dollar have already increased the most among a basket of major currencies in the past month. That damps the allure of the U.K. currency because it increases risk.
Implied volatility in the pound against the dollar, a measure of future price swings, declined to 12.87 percent after reaching a 3 1/2-year high of 13.36 percent on Tuesday. That’s up from 7.1 percent at the end of last year.
Polls are still showing the two major parties tied on about 35 percent of the vote apiece, not enough for an overall majority.
“The near-term risks to sterling are to the downside in the light of U.K. election uncertainty,” BNP Paribas SA analysts, including senior foreign-exchange strategist Phyllis Papadavid, wrote in a note to clients.
The pound will decline to $1.42 by the end of the second quarter, they wrote. After that, sterling will recover as economic news and the likelihood of the Bank of England normalizing monetary policy support the currency, the analysts wrote.
U.K. government bonds declined with Treasuries after a report showed U.S. jobless claims unexpectedly dropped last week. Separate data due on Friday is forecast by economists in a Bloomberg survey to show American employers added 245,000 jobs in March. Financial markets in the U.K. will be closed on Friday and Monday for the Easter holiday weekend.
The 10-year yield climbed four basis points, or 0.04 percentage point, to 1.58 percent. The 5 percent gilt due in March 2025 fell 0.495, or 4.95 pounds per 1,000-pound face amount, to 131.24. Treasury 10-year yields added four basis points to 1.90 percent, the first increase in five days.