Pound Tumbles to Weakest Level Since November 2014 Versus Euroby
Weakens through 80 pence per euro, first time since Dec. 2014
U.K. manufacturing PMI holds near lowest in three years
The pound depreciated to its weakest level versus the euro in 16 months as a report showed a gauge of manufacturing output held near the lowest level since 2013, adding to investor concerns that U.K. growth is slowing.
Sterling fell for a third day against the dollar. Data on Thursday showed the current-account deficit widened to the largest percentage of gross-domestic product on record. The pound dropped even as a separate report showed the U.K. economy grew at a faster pace than previously estimated at the end of 2015.
The pound just finished its worst quarter since 2008 versus the euro, amid concern Britain will vote to leave the European Union in a June 23 referendum and investment inflows will slow. The currency has also been under pressure as traders reduce bets that the Bank of England is getting closer to raising interest rates. A Purchasing Managers’ Index due next week is forecast by economists to show a gauge of services output rose from the lowest in about three years. The services industry dominates the U.K. economy.
“The PMIs are signaling that the economy appears to have lost further growth momentum early this year heading into the referendum” on European Union membership, said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The main driver this week for the pound weakening was the current-account data yesterday. It highlights that the U.K. economy remains heavily reliant on external financing.”
The pound depreciated 1 percent to 80.08 pence per euro as of 4:14 p.m. London time, having touched 80.20 pence, the weakest level since Nov. 20, 2014. Sterling fell 1.2 percent to $1.4183, extending its decline after U.S. Labor Department data showed employment climbed and wages picked up in March.
A gauge of future price swings in the pound-dollar exchange rate in three months’ time, based on options, stayed near the highest level since 2010. It surged on March 23 when the measure took into account the June 23 referendum.
Markit Economics said Friday its manufacturing PMI increased to 51 from 50.8 in February. The median of estimates in a Bloomberg survey was for a reading of 51.2. The average for the first quarter of the year equaled the lowest since 2013, Markit said.
“The risks are building to the downside, that plays into the pound’s underperformance,” BTMU’s Hardman said.