Pound Bears Looking to Data, BOE After Ending Three-Week Rally

  • Sterling posted back-to-back declines verus the euro
  • BOE officials set to announce latest rates decision May 12

Pound bears who have made the British currency the worst performer among developed nations in 2016, will have a raft of economic data and a Bank of England policy statement next week to help them assess whether gloom is still justified.

Bulls retreated, as sterling snapped a three-week gain versus the dollar that was driven by easing concern that British voters will vote to leave the European Union on June 23. Sterling suffered a second weekly decline against the euro as manufacturing, construction and services industries all trailed behind economists’ predictions, pushing the nation’s bonds to their biggest gain in four months.

Sterling is still being hurt as evidence emerges that uncertainty stemming from the EU referendum is hurting the economy, even as measures of expected volatility have stabilized in the past month.

Gilts have been supported, both as a haven and by speculation a Brexit would prompt the BOE to keep rates at a record-low for longer. The central bank and the government are among institutions to have warned that the EU vote next month is weighing on confidence and investment.

Industrial Output

The Monetary Policy Committee’s May 12 statement will be preceded by data earlier in the week showing annual contractions in industrial and manufacturing output, according to Bloomberg surveys of economists. Officials will keep the key interest rate at a record-low 0.5 percent, according to a separate poll.

“The data is a little bit lackluster at the moment, and my sense is that the MPC will be on cautious side,” Neil Jones, head of hedge fund sales at Mizuho Bank Ltd. in London, said about the BOE’s Monetary Policy Committee. “On the surface, you could say what lies ahead is probably a sell for sterling.”

The pound fell 1.2 percent this week to $1.4438 as of 5 p.m. in London Friday, the biggest drop since the five days through March 25. Sterling sank 0.9 percent to 79.10 pence per euro, following a 0.6 percent drop in the previous five days.

Benchmark 10-year gilt yields fell 18 basis points, or 0.18 percentage point, to 1.42 percent in the week, in the biggest decline since January. The 2 percent security due in September 2025 gained 1.58, or 15.80 pounds per 1,000-pound face amount, to 105.07.

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