BS: Pound Falls for Third Day After Reaching Two-Year High This Week
The pound weakened for a third day against the dollar on speculation the currency’s advance to a two-year high was overdone as an index showed U.K. economic data has been falling short of economists forecasts.
Sterling dropped versus all except one of its 16 major peers as Bank of England Bank of England Chief Economist Spencer Dale said policy makers will keep interest rates at a record low until there is a sustained period of strong growth. Policy makers have pledged to keep the key interest rate at 0.5 percent until unemployment falls to 7 percent. The Citigroup Economic Surprise Index for the U.K. was negative for a seventh day even as data today showed construction output increased and house prices rose. U.K. government bonds were little changed.
“We’ve seen the pound give back some of its recent strong gains over the past week,†said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “It’s a good reflection that the pound had got ahead of itself in strengthening in the near term but we are still confident that overall strengthening trend remains in play.â€
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The pound declined 0.5 percent to $1.6274 at 12:39 p.m. London time after climbing to $1.6466 on Dec. 10, the strongest level since August 2011. The U.K. currency fell 0.3 percent to 84.35 pence per euro, having slipped 0.6 percent this week.
The Citigroup U.K. Economic Surprise Index has declined to minus 0.1 after rising to 113.3 on Aug. 19, the highest since November 2012. The gauge indicates shows whether data has been above or below economists forecasts.
‘Far Stronger’
“We will tighten policy only when we are well along the road to recovery,†Dale said in the text of a speech delivered today at a Confederation of British Industry East of England event in Newmarket. “Yes: interest rates will rise at some point. But only against a far stronger economic backdrop.â€
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The pound has gained 5.6 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 4.6 percent and the dollar rose 1.6 percent.
U.K. home prices increased 0.6 percent from October, real-estate researcher Acadametrics and LSL Property Services Plc said. Construction increased 2.2 percent after falling a revised 0.5 percent in September, the Office for National Statistics said. Economists forecast a 1.6 percent increase.
“The macro-data in the U.K. is encouraging and that trend will continue next year,†said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. “I would expect to see a resumption on the upside for the pound.â€
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The U.K. currency will appreciate to $1.70 by the middle of next year and $1.75 by the end of 2014, Jones said. The U.K. currency will strengthen to 77.50 pence per euro by the end of next year, he said.
The 10-year gilt yield was at 2.90 percent after rising to 2.98 percent on Dec. 6, the highest level since Sept. 18. The price of the 2.25 percent bond due September 2023 was 94.50.
Gilts handed investors a loss of 3.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities fell 1.8 percent and U.S. Treasuries declined 2.9 percent.
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To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
