Pound Drops Below $1.60 as U.K. Recovery Loses Momentum

The pound had its biggest weekly drop in 15 months, sinking below $1.60 for the first time since November, as signs the U.K. economic recovery is fading damped bets on higher interest rates.

Sterling has its first loss against the euro in three weeks after Bank of England policy maker Ben Broadbent said that the recovery may not be strong enough to warrant higher rates in comments broadcast by ITV on Oct. 2. Reports this week showed British services and manufacturing growth is losing momentum and house prices declined, while in the U.S. the jobless rate fell to a six-year low. U.K. 10-year government bonds rose for a second week.

“The market is not going to shake off these doubts they have about U.K. monetary policy anytime soon,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London. “In conjunction with a strengthening dollar we’re now probing the $1.50s.”

The pound slid 1.8 percent to $1.5960 at 5 p.m. London time yesterday, falling the most in a week since the five days ended July 5, 2013. It depreciated 0.4 percent to 78.42 pence per euro.

Sterling slid 0.9 percent in the past week, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Forward contracts based on the sterling overnight interbank average, or Sonia, show investors pushed back bets on a 25 basis-point increase in borrowing costs to June. Just two months ago, a first Bank of England interest-rate increase was priced in for February.

U.S. Unemployment

The pound dropped the most in almost a month against the dollar yesterday as the U.S. unemployment rate fell to 5.9 percent, boosting speculation Federal Reserve policy makers are moving closer to raising their benchmark rate.

The 10-year gilt yield dropped eight basis points, or 0.08 percentage point, in the week to 2.39 percent. The price of the 2.75 percent security due September 2024 rose 0.7, or 7 pounds per 1,000-pound face amount, to 103.17.

The U.K. debt office is scheduled to auction 2.25 billion pounds in bonds due in 2045 on Oct. 7, while BOE policy makers start a two-day meeting in London the following day.

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