Pound Advances After Charts Show Currency Oversold Versus EuroBy
Sterling overlooks weaker-than-forecast consumer spending
Breakdown of growth still unfavorable for pound, MUFG says
The pound snapped a four-day drop against the euro after some investors judged the selling of U.K.’s currency was overdone.
Sterling also rose against the dollar, overlooking data that showed consumer spending in the U.K. rose less than forecast, reining in growth in the economy. The euro slid against the pound after its relative strength index climbed above 70, a threshold that is deemed as overbought on technical charts.
Gilts pared losses after household expenditure rose 0.1 percent in the second quarter, one-third the median forecast of economists in a Bloomberg survey. The economy grew 0.3 percent in the period, matching an initial estimate.
“The breakdown of growth was unfavorable for the pound, with consumption slowing markedly,” said Lee Hardman, a foreign-exchange strategist at MUFG in London. “The modest pound rebound could just reflect that it has been heavily sold recently.”
The euro fell 0.4 percent to 91.9 pence as of 11:32 a.m. in London, paring its advance this week to 0.6 percent. The common currency is headed for a fourth consecutive weekly gain against sterling. On the day, the pound traded 0.2 percent higher at $1.2827. The yield on 10-year gilts was little changed at 1.07 percent.
Some investors suggested that investors could be positioning ahead of the Federal Reserve’s two-day symposium that begins in Jackson Hole on Thursday.
“I would concentrate on the downtrend that has been in place since the start of August, and still is,” in sterling, said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA. “The pop higher could be pre-Jackson Hole positioning or leveling positions ahead of a long weekend.”
U.K.’s financial markets are closed on Monday for a holiday.