Pound Ends Three-Day Gain as Global Risks Erode Its Haven Status

  • Sterling halts rally from multi-year lows versus dollar, euro
  • Appeal damped by diminishing prospect of U.K. rate increase

The pound halted three days of gains versus the dollar and weakened against the euro as the deteriorating global economy diminished the prospect of an early interest-rate increase by the Bank of England.

Sterling fell against most of its 16 major peers as oil gave up its biggest two-day advance since 2008 and European stocks struggled to extend their recent rally. A report on Jan. 28 is set to give a mixed picture of Britain’s economy, with growth having quickened in the fourth quarter but slowed compared with a year earlier, according to analysts surveyed by Bloomberg.

An uneven recovery and Britain’s potential exit from the European Union have eroded the pound’s status as a haven in times of crisis. Investors are increasingly turning to the euro to shelter from market turmoil, driving the shared currency to a 3 percent gain versus the pound in 2016. That’s in contrast to during the euro-zone debt crisis, when sterling posted annual gains in each of the years from 2009 to 2012.

“Sentiment may deteriorate further with oil prices declining again today, driving the pound weaker,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt. “It was considered a safe haven in the past but that’s not the case any more as risk drivers -- particularly China, emerging markets and falling oil prices -- postpone expectations of a rate increase.”

The pound dropped 0.1 percent to $1.4246 as of 4:25 p.m. London time, having risen 0.8 percent over the final three days of last week. Those gains saw it climb from an almost seven-year low of $1.4080 reached on Jan. 21.

Sterling depreciated 0.5 percent to 76.05 pence per euro, ending a three-day rally from its weakest level since January 2015.

Forward contracts based on the sterling overnight index average, or Sonia, aren’t fully pricing in a quarter-point increase to the BOE’s main rate until after March 2017.

U.K. government bonds rose for the first time in three days. The benchmark 10-year gilt yield fell two basis points, or 0.02 percentage point, to 1.69 percent. The 2 percent security due September 2025 gained 0.2, or 2 pounds per 1,000-pound face amount, to 102.755. The yield climbed nine basis points over the previous two days.

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