Pound Has Steepest Weekly Drop Since June on Retail Sales

The pound had its steepest weekly drop versus the dollar since June after data showed U.K. retail sales unexpectedly fell in January, adding to evidence the economic recovery is faltering.

Sterling slid to the lowest level in six months against the greenback. It lost at least 0.7 percent this week against all 16 of its major peers tracked by Bloomberg after the Bank of England released its quarterly Inflation Report two days ago and Governor Mervyn King said Britain faced a muted recovery. Britain’s currency trimmed its decline since Feb. 8 as better-than-forecast U.S. manufacturing data boosted optimism that global growth is on track. Gilts were little changed.

“The data from the U.K. has disappointed once again,” Ian Stannard, London-based head of European foreign-exchange strategy at Morgan Stanley told Guy Johnson on Bloomberg Television. “Sterling can go quite a bit lower from here. Sterling will be one of the underperformers.”

The pound rose 0.2 percent to $1.5518 at 5 p.m. London time after sliding to $1.5462, the lowest since July 25. It dropped 1.8 percent this week, the biggest decline since the period ended June 1. Sterling appreciated 0.1 percent to 86.13 pence per euro, paring its weekly slide to 1.8 percent.

Investors should sell the pound against the dollar, betting it will fall to $1.52, Stannard recommended. Sterling last traded at that level in July 2010.

BOE Policy

Sales including fuel fell 0.6 percent from December, when they dropped a revised 0.3 percent, the Office for National Statistics said in London. The median forecast of 24 economists in a Bloomberg News survey was for an increase of 0.5 percent.

The Federal Reserve Bank of New York’s Empire State index of manufacturing climbed to 10 from minus 7.8 in January, exceeding all forecasts in a Bloomberg survey. It was the highest since May 2012. Readings greater than zero signal growth in New York, northern New Jersey and southern Connecticut.

The Bank of England kept its asset-purchase target at 375 billion pounds and its main interest rate at a record-low 0.5 percent when it met on Feb. 7.

“If necessary, we will do more,” King said on Feb. 13. “We must recognize, however, that there are limits to what can be achieved via general monetary stimulus -- in any form -- on its own.”

The U.K. economy shrank 0.3 percent in the last three months of 2012 and is facing the threat of an unprecedented triple-dip recession. Still, surveys of purchasing managers for January showed expansion in both manufacturing and services sectors, which together account for almost 90 percent of Britain’s gross domestic product.

Gilt Yields

The pound has depreciated 4.4 percent this year, the second-worst performer after the yen among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.7 percent and the euro rose 2.1 percent.

The 10-year gilt yielded 2.19 percent after falling as much as six basis points, or 0.06 percentage point, to 2.13 percent. The 1.75 percent bond due in September 2022 traded at 96.21.

U.K. government bonds handed investors a loss of 2.7 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds dropped 1.6 percent and Treasuries fell 0.8 percent.

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