BS: Pound Strengthens After U.K. Manufacturing Report; Gilts Decline
The pound strengthened for the first time in three days against the euro after a report showed U.K. manufacturing shrank less than economists forecast, damping speculation the Bank of England will increase monetary stimulus.
The U.K. currency climbed to a one-week high versus the dollar after Markit Economics and the Chartered Institute of Purchasing and Supply said producers of consumer goods increased output last month and a “severe decline” in new orders caused by Europe’s debt turmoil eased. U.K. government bonds fell before the Bank of England meets to review interest rates and asset purchases this week.
“The pound has rallied at the margin following this morning’s manufacturing data,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. “Recently, there have been some slightly better numbers coming from the U.K. but at best the economy is going sideways.”
The pound appreciated 0.2 percent to 79.14 pence per euro as of 1:46 p.m. London time, extending its advance over the past three months to 2.3 percent. Sterling climbed 0.1 percent to $1.5885 after reaching $1.5899, the strongest since Aug. 23.
An index of U.K. factory output rose to 49.5 in August from a revised 45.2 in July, Markit said. The median forecast of economists surveyed by Bloomberg News was for an increase to 46.1. A reading below 50 indicates contraction. A survey of the U.K. services sector will be released Sept. 5.
‘Bolster Expectations’
“It will be interesting to see if the rebound in manufacturing is also reflected in the services index,” David Tinsley, chief U.K. economist at BNP Paribas in London, wrote in a note. “That would help bolster expectations that the economy will return to growth in the second half of this year.”
Sterling faces so-called resistance at its Aug. 23 high of $1.5912, according to Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. A break above that level would see the currency at the strongest since May 17.
The pound has gained 1.6 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar weakened 0.9 percent and the euro declined 4.2 percent.
Speculation the Federal Reserve will add further monetary stimulus to support growth in the world’s largest economy has weighed on the dollar and boosted the pound.
“The dollar is on the defensive because it appears the Fed is on the cusp of implementing more quantitative easing,” FXPro’s Derks said.
Gilts Decline
The 10-year gilt yield climbed two basis points, or 0.02 percentage point, to 1.65 percent. The 1.75 percent bond due in September 2022 fell 0.16, or 1.60 pounds per 1,000-pound face amount, to 100.955.
Gilts returned 4.2 percent this year through Aug. 31, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 4 percent and U.S. Treasuries rose 2.7 percent.
The Bank of England will keep its key interest rate at a record low 0.5 percent and hold its asset purchase target at 375 billion pounds at its monthly policy announcement on Sept. 6, according to Bloomberg surveys of economists.
To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
