BLBG:Pound Declines to 15-Month Low Against Euro as U.K. Manufacturing Slows
The pound fell to a 15-month low against the euro as a report showed U.K. manufacturing growth unexpectedly slowed in June, adding to evidence that the economic recovery is faltering.
Sterling fell against all but one of 16 major currencies tracked by Bloomberg. A gauge of factory output dropped to 51.3 in June from 52.1 in May, Markit Economics and the Chartered Institute of Purchasing and Supply said today. That’s the lowest level since September 2009.
“Sterling is being completely marginalized by the worsening economic growth outlook in the U.K.,” said Peter Rosenstreich, chief foreign-exchange analyst at Swissquote Bank SA in Geneva. “If we continue to see an erosion in growth prospects then the possibility of rate hikes is virtually out of the question.”
The pound weakened 0.4 percent to 90.68 pence per euro as of 9:57 a.m. in London, from 90.34 pence yesterday in New York. It reached 90.70 earlier, the weakest since March 2010. Sterling was 0.2 percent lower against the dollar at $1.6017 and little changed at 129.26 yen.
Britain’s currency slid against the euro yesterday on bets a faltering economy will limit policy makers’ ability to raise interest rates, at the same time that the European Central Bank lifts borrowing costs to curb inflation. A report yesterday showed U.K. consumer confidence fell more than economists forecast in June while the Bank of England’s Credit Conditions Survey said mortgage demand will drop in the third quarter.
Interest-Rate Bets
Investors are betting the central bank will raise borrowing costs next May, according to forward contracts on the sterling overnight interbank average, data from Tullett Prebon Plc show. As recently as February, traders were betting on a rate increase in May of this year, the data showed.
Gilts rose, with two-year yields falling two basis points to 0.81 percent and 10-year yields one basis point lower at 3.37 percent.
Barclays Capital yesterday pushed back its forecast for interest-rate increases, saying the central bank will now probably keep its main rate unchanged until May 2012. The bank, which previously forecast a rate increase in November, said the change reflects weaker than previously expected economic growth and recent comments from central bank officials.
Bank of England policy maker Adam Posen said on June 27 that a call by the Bank for International Settlements for higher rates worldwide to curb inflation was “nonsense.”
The pound has fallen 9.1 percent in the past 12 months, making it the second-worst performer among 10 developed-market currencies after the U.S. dollar, according to Bloomberg Correlation-Weighted Currency Indexes.
To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
