Pound Weakens Versus Dollar as Rate Speculation Wanes

The pound fell for the first week in a month against the dollar as reports this week failed to surpass economists’ forecasts, fueling speculation the recovery isn’t strong enough to lead to an early interest-rate increase.

The U.K. currency dropped against all of its 16 major counterparts as Morgan Stanley said sterling looked to be “overextended” after recent gains. The central bank won’t tighten monetary policy until the economy is growing at “a sustained pace,” Bank of England Governor Mark Carney said this week. Policy makers announce their next policy decision on Oct. 10. U.K. government bonds declined.

“The pound has had a fantastic run recently and it gets to the level where profit-taking looks like an attractive option,” said Kathleen Brooks, European research director at Forex.com in London. “A lot of good news on the economy is already in the price. The risk is that the stronger the pound, the Bank of England may come out and do something as they are committed to keeping interest rates low.”

The pound dropped 0.5 percent this week to $1.6067 as of 5 p.m. in London yesterday after rising to $1.6260 on Oct. 1, the strongest since Jan. 2. The U.K. currency depreciated 0.9 percent to 84.54 pence per euro.

Sterling jumped 4.4 percent versus the dollar in September as improving economic data prompted investors to increase bets the Bank of England will raise borrowing costs earlier than it has predicted.

Falling Short

An U.K. manufacturing index fell to 56.7 last month from a revised 57.1 in August, Markit Economics said Oct. 1. Economists surveyed by Bloomberg News predicted an increase to 57.5. Halifax said on Oct. 3 that house prices rose 0.3 percent in September, less than the 0.5 percent predicted in a separate Bloomberg survey.

Citigroup Inc.’s Economic Surprise Index for the U.K. fell to 49.60 on Oct. 3, the lowest since Aug. 1. The gauge, which shows whether data beat or fell short of forecasts, climbed to a nine-month high of 113.30 on Aug. 19. It was at 50 yesterday.

The Bank of England will keep its benchmark rate at a record-low 0.5 percent and its asset-purchase target at 375 billion pounds on Oct. 10, according to economists surveyed by Bloomberg News.

“We’re not going to begin to think about raising interest rates or tightening monetary policy until we see the conditions in the economy where the economy is really growing,” Carney said in an interview with ITV Anglia broadcast on Oct. 2.

The pound rose 1 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar gained 2.3 percent and the euro climbed 5.7 percent.

The 10-year gilt yield climbed six basis points, or 0.06 percentage point, this week to 2.74 percent. The 2.25 percent bond maturing in September 2023 declined 0.525, or 5.25 pounds per 1,000-pound face amount, to 95.77.

Gilts lost 2.6 percent this year through Oct. 3, according to Bloomberg World Bond Indexes. German bunds dropped 1.6 percent and Treasuries fell 2.4 percent.

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