Pound Shows It Will Take a Lot More to Ignite a Rally That Lasts

  • Sterling falls toward three-year low versus euro set Tuesday
  • U.K. currency briefly rallies after jobless-data surpise

The pound approached a three-year low versus the euro even after Britain’s labor market showed signs of resilience following the country’s decision to quit the European Union.

While it briefly rallied against the dollar and single currency, investors remained focused on the economic and political risks for the U.K.’s currency. Data showed jobless claims fell 8,600 in July, following an increase of 900 in June. Economists had forecast a gain of 9,000 in what were the first official numbers since the Brexit referendum.

“The pound appreciated somewhat on the back of this data” and couldn’t keep the gains, said Esther Reichelt, a Frankfurt-based currency strategist at Commerzbank AG. “The data surprise was far from a game changer and in the end it is the political uncertainty that is the main point against sterling right now. Whether to lay off workers or not will in the end depend on the outcome of the Brexit negotiations with the EU.”

Investors are digesting a slew of fresh data this week on the state of the economy in post-referendum Britain, with retail sales for July due tomorrow. A report Tuesday showed U.K. inflation accelerated last month more than economists forecast, while import costs jumped the most in more than four years because of a weaker currency.

The pound dropped 0.3 percent to $1.3005 as of 4:40 p.m. London time, after earlier climbing as much as 0.2 percent. It jumped 1.3 percent on Tuesday. The dollar rose versus most of its major peers after two regional Federal Reserve chiefs suggested markets are underestimating the likelihood of higher U.S. interest rates.

Sterling depreciated 0.3 percent to 86.66 pence per euro, close to its weakest level in three years, reached the previous day.

Steady Decline

The pound has fallen against the single currency for seven of the last eight days and has declined against all its Group-of-10 peers since the June 23 Brexit referendum, including a 17 percent drop against the yen, the biggest tumble in the group.

Hedge funds and other large speculators are the most bearish on the pound since records began, according to Commodity Futures Trading Commission figures dating from 1992. Investors were last positive on the U.K. currency in November.

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