Pound’s Worst Run in Two Months Compounded by GDP Disappointment

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The pound fell for a fifth day against the dollar, its longest run of losses in more than two months, after first-quarter economic growth fell short of analyst forecasts.

The British currency weakened against the euro for a second day after the report, which showed gross domestic product grew 0.3 percent in the first quarter. While that matched the government’s previous reading, it fell short of economists’ estimates for an upward revision to 0.4 percent. U.K. gilts rose as traders added to bets interest rates will stay lower for longer.

“Markets decided to sell sterling on the back of the GDP data,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. “It shows you the market is looking for the slightest excuse to confirm what it wants to believe -- at the moment the market wants to buy dollar.”

The pound weakened 0.3 percent to $1.5313 at 5:56 p.m. London time and touched $1.5261, the lowest level since May 8. It fell 0.6 percent to 71.44 pence per euro.

The dollar has strengthened versus all of its 16 major peers since May 22, when a report showed a key U.S. inflation measure rose faster than economists predicted and Federal Reserve Chair Janet Yellen said she expected to raise interest rates this year.

Sterling has dropped against its U.S. counterpart each day since then, taking its run of losses to the longest since March 6, and accumulating a 1.2 percent decline.

Rates Expectations

While the U.S. is moving closer to a rate increase, investors are pushing back bets on when the Bank of England will act. Sonia forward contracts show the first 25 basis-point rate increase in the U.K. will come later than July 2016. Last week, they were priced for a move that month.

The pound will “remain a tug-of-war between Fed and Bank of England rate expectations,” Kamal Sharma, a London-based senior Group-of-10 currency strategist at Bank of America Merrill Lynch, wrote in a note to clients.

Still, with the European Central Bank having begun to pump 1.1 trillion euros ($1.2 trillion) worth of stimulus into the financial system, the pound has gained 8.7 percent versus the euro since the start of this year. It reached 70.14 pence per euro on March 11, which was the strongest since 2007.

“Our strongest conviction” for the pound to outperform “is on the crosses where the policy-divergence theme is more pervasive,” Sharma wrote. Bank of America Merrill Lynch revised its euro-sterling year-end forecast to 67 pence per euro, from the previous 71 pence per euro.

The yield on benchmark 10-year gilts fell six basis points, or 0.06 percentage point, to 1.82 percent. The 5 percent bond due in March 2025 rose 0.59, or 5.90 pounds per 1,000-pound face amount, to 128.31.

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