- Decline triggered after opinion surveys sway toward ‘Leave’
- U.K. services growth stays ‘frustratingly weak’: Markit
The pound is heading for its biggest weekly drop against the euro in a year as investors are shaken in their view that Britain will vote to stay in the European Union.
Sterling’s appreciation in the last three weeks of May halted as recent polls swung in favor of the ‘Leave’ camp, in contrast to earlier ones where pro-EU voters held a lead. The pound pared its weekly losses against the dollar on Friday after the U.S. reported that employers in May added the fewest workers in almost six years. It was still set for its first weekly loss since May 6 versus the greenback.
“I would mainly blame it on the polls,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG, referring to sterling’s recent drop. The lead of the ‘Remain’ camp “has certainly declined, and that’s the reason why the pound is weakening.”
Sterling weakened 0.9 percent to 78.05 pence per euro as of 3:57 p.m. in London, heading for a 2.6 percent weekly depreciation versus the single currency, the most since May last year. The pound rose 0.6 percent to $1.4512, paring its decline this week to 0.8 percent.
The pound is the worst performer versus the dollar after the Mexican peso among 16 major currencies this year, according to Bloomberg’s World Currency Ranker.
Underwhelming economic data also weighed on sterling this week. With the referendum undermining on investment and hiring commitments, there is “frustratingly weak” growth in U.K. services, the biggest part of the economy, Markit Economics said on Friday. While the Purchasing Managers Index for services rose to 53.5 in May from 52.3, new business grew at the slowest rate in more than three years.
“We are seeing the uncertainty regarding the outcome of the referendum is having an effect on the economy,” Commerzbank’s Nguyen. “Business sentiment and household sentiment have clearly deteriorated in the first quarter and are going to remain depressed in the second quarter.”
The 10-year U.K. government bond yield fell six basis points, or 0.06 percentage point, to 1.28 percent, set for a weekly decline of 16 basis points. The 2 percent gilt due in September 2025 rose 0.545, or 5.45 pounds per 1,000-pound face amount, to 106.235.