Pound Climbs Against Euro on Construction Data, Draghi Comments
The pound rose against the euro after an industry report showed U.K. construction improved last month and as European Central Bank President Mario Draghi said the region’s policy makers are open to negative interest rates.
Sterling fell for the first time in seven days versus the dollar. The U.K. currency has risen 2.7 percent in the past month against the greenback after slipping 6.5 percent in the first quarter and climbed yesterday as data showed manufacturing shrank in April by less than economists predicted. U.K. government bonds rose, pushing 10-year yields to the lowest since September.
“At the moment, the U.K. economy is surprising more downbeat expectations” and allowing the pound to rally, said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. The past month’s advance against the dollar “is a corrective rebound phase after a sharp decline in the first quarter.”
The pound gained 0.6 percent to 84.18 pence per euro at 4:38 p.m. London time after appreciating to 84.08 pence. It reached 83.98 pence on April 26, the strongest level since Jan. 24. Sterling dropped 0.3 percent to $1.5505. It climbed to $1.5606 yesterday, the highest since Feb. 13.
An index of building-industry output increased to 49.4 from 47.2 in March, Markit and the Chartered Institute of Purchasing and Supply said today. While that was below the 50 level that indicates contraction, it was more than the median forecast of 48 in a Bloomberg News survey of nine analysts.
The gauge hasn’t been 50 or above since October.
“We will look at all the incoming data and stand ready to act if needed,” Draghi said at a press conference in Bratislava, the Slovakian capital. Asked if further action could include charging banks to park excess cash with the ECB overnight, he said: “We will look at this with an open mind.”
The pound has gained 2.5 percent in the past month, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 1.6 percent, while the dollar dropped 0.4 percent.
The Bank of England’s Monetary Policy Committee meets next on May 8-9. Governor Mervyn King has wanted to expand the U.K. central bank’s 375 billion-pound asset-purchase target for three consecutive months and has been outvoted by a majority on the nine-member policy committee, minutes of their meetings show.
“The data that we’ve been seeing hasn’t been as bad as expected,” said Jane Foley, senior foreign-exchange strategist at Rabobank International in London. Still “the data has just not been good enough for the market to see good reasons for additional momentum.”
The 10-year gilt yield fell three basis points, or 0.03 percentage point, to 1.62 percent after reaching 1.61 percent, the least since Sept. 3. The 1.75 percent bond maturing in September 2022 rose 0.29, or 2.90 pounds per 1,000-pound face amount, to 101.14.
Gilts have returned 2.1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds and U.S. Treasuries gained 1.1 percent.
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