Pound Falls Versus Euro as Data Signals Recovery Stalling

The pound declined for a fourth week against the euro, the longest streak since September, as economic reports on consumer confidence and manufacturing suggested the U.K. economic recovery is petering out.

Sterling fell to a 15-month low against the single currency as data showed economic confidence in the euro area improved in January, adding to signs the region’s debt crisis is easing. Gilts dropped for a second week before policy makers meet amid speculation they will hold their bond-buying program at 375 billion pounds ($590 billion).

“With the euro story improving, the pound is losing its safe-haven status somewhat,” said Robert Mialich, a currency strategist at UniCredit Global Research in Milan. “And it doesn’t help that the U.K. economic outlook isn’t promising. People are increasingly questioning the country’s AAA status. We expect sterling to weaken further.”

The pound depreciated 2.1 percent to 87.97 pence per euro at 5:05 p.m. in London yesterday, when it touched 87.17 pence, the weakest level since October 2011. Sterling dropped 0.4 percent to $1.5734 for a third week of declines.

A gauge of U.K. manufacturing output fell to 50.8 this month from a revised 51.2 in December, Markit Economics and the Chartered Institute of Purchasing and Supply said yesterday. Economist surveyed by Bloomberg forecast a decline to 51. A reading above 50 indicates expansion. A GfK NOP Ltd. consumer confidence index rose to minus 26 in January, from minus 29 the previous month.

Consumer Sentiment

An index of executive and consumer sentiment in the euro-area climbed to 89.2 in January, the highest since June, from 87.8 in December, the European Commission said Jan. 30.

The pound has weakened 4.3 percent this year, the second-worst performer after the yen among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 3.6 percent and the dollar dropped 0.7 percent.

The Bank of England policy makers will keep the benchmark rate unchanged at 0.50 percent on Feb. 7, according to all 54 analysts in a Bloomberg survey. They will also maintain their asset-purchase target, another survey showed.

Gilts declined, with 10-year yields rising four basis points, or 0.04 percentage point, to 2.10 percent. The 1.75 percent bond due September 2022 dropped 0.35, or 3.50 pounds per 1,000-pound face amount, to 97.

Gilts have lost 1.9 percent this year through January 31, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds dropped 1.8 percent and Treasuries fell 0.9 percent.

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