BLBG:Pound Slumps After U.K. Manufacturing Contracts; Gilts Advance
The pound fell to the lowest level since July 2010 against the dollar after an industry report showed U.K. manufacturing unexpectedly shrank in February.
Sterling dropped for the third time in four days versus the euro as the Bank of England said mortgage approvals declined in January, signaling the housing market is struggling to recover. The pound has dropped the most of any major currency this year as speculation the central bank will need to add more monetary support to the faltering economy damped demand for the currency. U.K. government bonds rose, with 10-year yields set for their biggest weekly drop since June.
“The data was supposed to be good and it came out negative so that has taken the rug out from under sterling’s feet,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “There is an array of negative fundamentals for the U.K., so it’s very difficult to see silver linings. I think sterling will be weak all year.”
The pound dropped 0.8 percent to $1.5035 at 12:19 p.m. London time after sliding to $1.5013. The U.K. currency declined 0.4 percent to 86.48 pence per euro. It fell to 88.15 pence on Feb. 25, the weakest since Oct. 28, 2011.
The pound has depreciated 5.5 percent this year, the worst performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 3.1 percent and the euro rose 1.4 percent.
Manufacturing Shrinks
A gauge of U.K. manufacturing based on a survey of purchasing managers slid to 47.9 last month, according to Markit Economics and the Chartered Institute of Purchasing and Supply. Economists surveyed by Bloomberg forecast an increase to 51, above the level of 50 that indicates contraction.
Lenders granted 54,719 mortgages, down from 55,632 in December, the Bank of England said. Economists forecast an increase to 56,500, a separate Bloomberg survey showed.
WPP Plc (WPP), the world’s largest advertising company, said the weaker pound was boosting its business.
“We’ll have a bit of a following wind from currency,” Chief Executive Officer Martin Sorrell said on Bloomberg Television’s “Countdown” in an interview with Mark Barton. “We’ve already seen the dollar go from about $1.60 to $1.50 as the pound weakened against the dollar the first few months of this year, so things I think are sort of moving our way a little bit as we go into 2013.”
WPP’s profit before interest and taxation rose 7.1 percent to $1.53 billion pounds, the company said today.
Gilts Gain
The 10-year gilt yield fell seven basis points, or 0.07 percentage point, to 1.90 percent, the lowest since Jan. 2. The 1.75 percent bond due in September 2022 rose 0.61, or 6.10 pounds per 1,000-pound face amount, to 98.685. The yield has dropped 21 basis points this week, the most since the period ended June 1.
The two-year yield dropped three basis points to 0.21 percent, heading for an eighth week of declines, the longest since June 2011.
“Prospects for U.K. growth aren’t good,” said Marc Ostwald, a rates strategist at Monument Securities Ltd. in London. “Certainly the growth outlook justifies the level of gilt yields.”
U.K. government bonds have lost 1.1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds slid 0.5 percent and Treasuries fell 0.2 percent.
To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
