Pound Rally Evaporates as Biggest Part of Economy Loses Momentum

  • Sterling ends 5-day gain versus euro, 3-day rally to dollar
  • Services PMI at lowest since March 2013: Markit Economics

The pound ended its longest run of gains in seven months versus the euro and struggled to maintain a rally against the dollar as evidence mounted that the U.K. economy is losing momentum.

Sterling retreated against 12 of its 16 major counterparts after a February index of U.K. services, which account for about three quarters of the nation’s output, dropped to an almost three-year low. The gauge also fell short of the level predicted by economists surveyed by Bloomberg.

The services report followed data earlier this week showing slowdowns in construction and manufacturing, and added to the impact of global market turmoil and concern Britain will quit the European Union. This, together with waning investor expectations of an interest-rate increase, has seen the pound tumble about 5 percent versus the dollar and euro in 2016.

“The pound is stalling because the fundamental picture is not solid yet,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt. “We certainly need to see some further improvement in the economic situation, particularly the inflationary picture, in order for the market to really increase rate-hike expectations.”

Sterling had been supported in recent days amid speculation a slide on “Brexit” concerns had gone too far, and its five-day advance versus the euro through Wednesday was its longest winning run since July. Boris Schlossberg, managing director of foreign-exchange strategy at BK Asset Management in New York, said the pound’s losses last week had been supplanted by optimism that “cooler heads will prevail.”

The U.K. currency fell 0.1 percent to $1.4063 as of 12:20 p.m. London time, after reaching $1.4107, the highest since Feb. 23. It slipped 0.3 percent to 77.43 pence per euro, having advanced Wednesday to 76.91, the strongest level since Feb. 8.

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