Pound Falls Against Dollar Amid Slowdown in Key U.K. Industries

  • Sterling drops below $1.50 to weakest level in seven months
  • U.K. currency undermined by retail prices, construction data

The pound fell to a seven-month low against the dollar as retail and construction data added to evidence Britain’s economy is losing momentum, bolstering the case for interest rates to stay at a record low for longer.

Positive remarks on the rate outlook and economy by Bank of England official Jon Cunliffe weren’t enough to support sterling, which declined against all of its 16 major peers. The U.K. currency weakened a second day versus the euro even after data showed inflation in the economic bloc fell short of strategists’ forecasts last month.

“Sterling is behaving somewhere in the middle, between the euro on the one hand and the dollar on the other,” said Ulrich Leuchtmann, head of foreign-exchange strategy at Commerzbank AG in Frankfurt. “Most of the market participants are expecting that we don’t get a very quick interest-rate normalization from the Bank of England. Short-term risks dominate.”

The pound dropped as much as 1.1 percent to $1.4918, the lowest level since April, and was at $1.4927 as of 5 p.m. London time. It weakened 0.5 percent to 70.83 pence per euro.

Near Zero

Inflation in the 19-nation euro region remained at 0.1 percent, the European Union’s statistics office in Luxembourg said. Economists surveyed by Bloomberg predicted the rate would rise to 0.2 percent.

In the U.K., the British Retail Consortium’s Shop Price Index dropped the most since March last month compared with a year earlier, while a Purchasing Managers Index showed growth in house building slowed in November.

Forward contracts based on the sterling overnight index average, or Sonia, aren’t fully pricing in a quarter-point rate increase by the BOE until after January 2017, data compiled by Bloomberg show.

U.K. government bonds were little changed, after the 10-year yield slid to the lowest in almost two months, as the nation sold 3.75 billion pounds of debt securities due in 2021.

The 10-year gilt yield was 1.75 percent, after dropping to as low as 1.72 percent. The price of the 2 percent security due September 2025 was 102.195 percent of face amount. Five-year yields were little changed at 1.16 percent.

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