BLBG:Pound Falls for Second Day Versus Euro as U.K. Retail Sales Drop
The pound weakened for a second day against the euro after an industry report showed a gauge of U.K. retail sales unexpectedly declined last month, signaling the economic recovery is uneven.
Sterling dropped against most of its major counterparts even as separate data from Lloyds Banking Group Plc’s Halifax unit showed house prices rose in April more than economists predicted. The Bank of England’s Monetary Policy Committee starts a two-day meeting today to review interest rates and whether to resume its program of bond purchases known as quantitative easing. Gilts were little changed as the U.K. sold 30-year inflation-linked securities at a record-low yield.
“We’ve got the Bank of England tomorrow and we could see a pullback on the pound,” said Michael Hewson, a market analyst at CMC Markets Plc in London. “I don’t see too much downside in it. It’s very unlikely the Bank of England will do any further quantitative easing between now and the third quarter.”
The pound weakened 0.4 percent to 84.78 pence per euro at 11:11 a.m. London time after sliding 0.4 percent yesterday. The U.K. currency was little changed at $1.5505 after climbing to $1.5606 on May 1, the strongest since Feb. 13.
Retail sales at stores open at least 12 months, measured by value, dropped 2.2 percent in April from a year earlier, the British Retail Consortium said. The median forecast of economists surveyed by Bloomberg was for a gain of 1.9 percent. Home values rose 1.1 percent from March, when they increased by a revised 0.4 percent, Halifax, said.
Sterling may climb to $1.58 in the next few weeks if it manages to stay above $1.5410, CMC Markets’ Hewson said. The pound hasn’t traded at $1.58 or stronger since Feb. 11.
Best Performer
The U.K. currency has strengthened 1.9 percent in the past month, the best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 0.1 percent, while the euro gained 1.2 percent.
“The BRC retail sales monitor released overnight from the U.K. was disappointing and broke the recent cycle of encouraging news for the economy,” Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London, wrote in an e-mailed report. “The slightly lower number hasn’t particularly hurt sterling for now.”
The 10-year gilt yielded 1.78 percent after rising to 1.81 percent yesterday, the highest since March 26. The 1.75 percent securities due in September 2022 traded at 99.72.
Record Yield
The Debt Management Office sold 1.1 billion pounds of inflation-linked bonds maturing in 2044 at a so-called real yield of minus 0.234 percent, the lowest since Bloomberg started compiling the data in 2006.
Demand for the securities has been supported as investors boosted bets that consumer price increases will accelerate as the Bank of England focuses on boosting the economy.
Britain’s 30-year break-even rate, a gauge of expectations of inflation derived from a difference in yields between gilts and index-linked securities, was little changed at 3.37 percentage points today. It reached 3.38 percentage points yesterday, the most since April 24.
Gilts returned 1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 0.5 percent and Treasuries rose 0.4 percent.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
