BLBG:Pound Weakens For 2nd Day Versus Euro After House Prices
The pound fell against the euro for the second straight day after a report showed U.K. house prices dropped in July to the lowest level in a year, underscoring the weakness of the nation’s economy.
Sterling added to yesterday’s decline versus the 17-nation currency even as data showed inflation unexpectedly accelerated last month. The Bank of England, which kept its bond-buying program unchanged this month, is scheduled to publish the minutes from the meeting tomorrow. Gilts were little changed.
“It’s clear that the U.K. economy is in a very fragile state,” said Chris Walker, a currency strategist at UBS AG in London. “We see some downside for the pound, but we are not looking for a huge selloff. The inflation data was driven by temporary factors. I don’t think there’s a particularly high hurdle for more stimulus.”
The pound depreciated 0.1 percent to 78.69 pence per euro at 12:21 p.m. London time, after dropping 0.4 percent yesterday. The U.K. currency was 0.1 percent stronger at $1.5696.
A U.K. home-price gauge fell to minus 24 from minus 22 in June, the London-based Royal Institution of Chartered Surveyors said in a report today. A reading below zero means more surveyors saw price declines than gains last month. Measures of newly agreed sales tumbled to a four-year low.
Sterling Weakness
Britain’s currency has declined 3.2 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar slipped 0.5 percent in the period and the yen rose 1.4 percent.
Consumer prices increased 2.6 percent from a year earlier, compared with 2.4 percent in June, the Office for National Statistics said today in London. Economists forecast a reading of 2.3 percent, according to the median estimate in a Bloomberg News survey. Inflation from transport, particularly airfares, surged 22 percent in the month, the data showed.
“I shouldn’t imagine that these numbers will overly concern the central bank,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. Policy makers “are poised to undertake more action if it’s needed,” he said.
Policy makers started a program this month to boost the flow of credit as they seek to revive growth. The economy shrank 0.7 percent in the three months through June, the third consecutive quarter of contraction.
The minutes of this month’s Bank of England meeting will show how officials voted when they kept their bond-purchase target on hold at 375 billion pounds. The central bank increased the target by 50 billion pounds in July in a program that’s due to run until early November.
Bond Volatility
The yield on the 10-year gilt was little changed at 1.56 percent. The 4 percent security maturing in March 2022 traded at 121.595. The two-year note yield was at 0.129 percent.
Volatility on gilts was the third highest in developed European markets today, behind Portugal and Finland, according to measures of 10-year or similarly dated debt, the spread between two- and 10-year securities and credit-default swaps.
U.K. bonds have returned 3.7 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds earned 3.4 percent and U.S. Treasuries rose 2 percent.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
