Pound Stays Below $1.66 After U.K. Growth ReportLucy Meakin
The pound stayed below $1.66 after a report showed the pace of Britain’s fourth-quarter economic expansion fell short of some analysts’ expectations.
Sterling pared its advance versus the euro and declined against 10 of its 16 major peers. U.K. government bonds stayed lower after the report, which showed gross domestic product increased 0.7 percent in the fourth quarter, matching the median forecast of economists in a Bloomberg News survey. Estimates ranged from 0.3 percent to 1 percent, with almost half of the 39 economists surveyed predicting growth of more than 0.7 percent.
“Some market participants were sensing risks to the upside, and so the in-line print disappointed,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. “It’s still a good print and I would expect cable to recover in the longer term,” he said, referring to the pound-dollar exchange rate.
The U.K. currency slipped 0.1 percent to $1.6564 at 12:44 p.m. London time after climbing to $1.6668 on Jan. 24, the highest level since May 2011. The pound added 0.1 percent to 82.36 pence per euro after strengthening to 82.23 pence.
A report on Jan. 22 showed the U.K. jobless rate fell to 7.1 percent in the three months through November, approaching the 7 percent level announced by Bank of England Governor Mark Carney in August as the threshold for reviewing monetary policy. The currency has fluctuated against the euro and dollar since he pledged on Jan. 24 to review forward guidance within weeks and keep down interest rates to support the economy.
Sterling has gained 10 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, on speculation the Bank of England will move closer to raising interest rates as the economy improves. The euro rose 5.6 percent and the dollar gained 3.9 percent.
“Clearly with the way sterling has performed there is a growing divergence between what the bank says and what the market believes the bank will inevitably have to do,” said Neil Mellor, a foreign-exchange strategist at Bank of New York Mellon in London.
Data compiled by Citigroup Inc. show investors haven’t made “excessively” large bets that the pound will strengthen, according to Valentin Marinov, head of European Group-of-10 currency strategy in London.
“This could mean that absent significant disappointments from U.K. data or dovish surprises from the BOE speakers, sterling could remain generally supported for the time being,” Marinov wrote in an e-mailed note to clients. Citigroup is the second-biggest currency trader according to Euromoney Institutional Investor rankings.
The 10-year gilt yield rose four basis points, or 0.04 percentage point, to 2.81 percent. The 2.25 percent bond due in September 2023 fell 0.3, or 3 pounds per 1,000-pound face amount, to 95.3.
The Debt Management Office is scheduled to sell index-linked government bonds due in 2068 via banks this week.
U.K. gilts returned 1.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries gained 1.3 percent and German securities earned 1.5 percent.