Pound Suffers Worst Run in a Year Against Euro Buoyed by Draghi

Updated on

The pound weakened for a sixth day against the euro as European Central Bank President Mario Draghi’s positive comments about the regional economy contrasted with a slowdown in U.K. services growth.

Sterling’s decline took its losing streak to the longest in more than a year. Draghi’s comments after the ECB’s monthly policy meeting followed signs Britain’s recovery is faltering, with the services measure falling short of analyst estimates.

“We haven’t seen a number this weak since the back end of last year and that’s disappointing,” said Jeremy Stretch, the head of currency strategy at Canadian Imperial Bank of Commerce in London. “It suggests that the expected rebound” in Britain’s economy this quarter “looks rather less robust than we might have thought.”

The pound weakened 1.1 percent to 73.47 pence per euro as of 5:32 p.m. London time, contributing to its longest run of losses since May 2014. It was little changed at $1.5338.

The euro climbed to a two-week high against the dollar, and strengthened versus all but three of its 16 most-traded counterparts, after Draghi said inflation in the currency bloc would start accelerating later this year.

Slowdown Signs

The Markit Economics Purchasing Managers Index for U.K. services dropped to 56.5 in May, missing economists’ forecasts of 59.2 and coming in below the prior month’s 59.5.

A reading above 50 still indicates expansion and CIBC’s Stretch said he was “not yet convinced that the resilience of sterling is going to be permanently compromised by this data.”

A gauge of U.K. house prices meanwhile showed the slowest growth in almost two years. Sterling’s decline helped cut its gain over the past month to 2.4 percent versus a basket of peers tracked by Bloomberg Correlation-Weighted Indexes, still the best performance in the group.

Data out of the U.K. have provided little clarity on the health of the economy and made it tough to predict where sterling is headed. Earlier this week, an index of manufacturing came in below estimates but mortgage approvals jumped the most in six years.

“How much lower do we go from here? I suspect not very far,” said Daragh Maher, a foreign-exchange strategist at HSBC Holdings Plc in London. “The market will say ‘Hold on, the numbers are less good than expected, but none of these are entirely bad numbers. That is the difficulty.’’

Analysts forecast the Bank of England will keep interest rates and the size of its asset-purchase program unchanged at its meeting on Thursday and investors will have to wait until the minutes later in the month for hints on when it will tighten policy.

The yield on benchmark 10-year government bonds rose 10 basis points, or 0.10 percentage point, to 2.08 percent, the highest close since November. The 5 percent bond due in March 2025 fell 1, or 10 pounds per 1,000-pound face amount, to 125.68.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE