The pound snapped a seven-day advance against the euro, the longest streak in more than three years, as a gauge of U.K. manufacturing activity increased at a slower pace in July, damping demand for Britain’s currency.
Sterling was poised for weekly gains against most of it 16 major peers after Bank of England policy makers yesterday kept their bond-buying program unchanged and left the main interest rate at a record low. The pound was little changed against the dollar before a report economists said will show U.S. employers added jobs at a faster pace in August amid speculation the Federal Reserve will start slowing monetary stimulus as soon as this month.
“The direction of the pound will be data dependent, with the U.S. nonfarm payrolls being a key factor in the next 24 hours,” said Kathleen Brooks, a research director at Forex.com, a unit of online currency-trading company Gain Capital Holdings Inc. (GCAP) “If the U.S. data supports the market view that the Fed is likely to start to taper its bond purchases soon, the pound may weaken against the dollar.”
The pound slid 0.2 percent to 84.31 pence per euro at 9:59 a.m. London time after reaching 84.08 pence yesterday, the strongest level since May 6. It has appreciated 1.1 percent this week against the common currency. Sterling was at $1.5574, having gained 0.5 percent since Aug. 30.
U.K. factory output rose 0.2 percent from June, when it gained a revised 2 percent, the Office for National Statistics said today in London. The increase was in line with the median forecast of 23 analysts’ estimates in a Bloomberg News survey. Industrial output was unchanged, the statistics office said.
A separate report showed the U.K.’s trade deficit increased to 9.9 billion pounds in July from a shortfall of 8.2 billion pounds in June. The median forecast of 17 analysts in a Bloomberg survey was for a deficit of 8.2 billion pounds.
The central bank’s Monetary Policy Committee, meeting for the first time since introducing forward guidance on interest rates last month, held the asset-purchase target at 375 billion pounds yesterday. It also kept its official interest rate at 0.5 percent.
Under the Bank of England’s guidance policy, the MPC plans to keep its key interest rate on hold as long as unemployment exceeds 7 percent. The jobless rate was at 7.8 percent, according to data released on Aug. 14.
Fed policy makers are debating whether the economy is strong enough to allow them to pare monthly purchases of $85 billion in Treasuries and mortgage debt, which tend to debase the dollar. They next meet on Sept. 17-18.
A U.S. Labor Department report today will show payrolls rose by 180,000 in August following a 162,000 gain a month earlier, according to the median forecast of 94 economists in a Bloomberg survey. The unemployment rate stayed at 7.4 percent, matching the lowest since December 2008, a separate Bloomberg survey shows.
The pound strengthened 6.7 percent over the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 3.9 percent and the dollar climbed 2.4 percent.
Gilts rose, with 10-year securities paring a seventh weekly decline, the longest run since February 2007.
The 10-year gilt yield dropped two basis points, or 0.02 percentage point, to 2.99 percent after reaching 3.01 percent yesterday, the highest since July 27, 2011. The rate has increased 21 basis points this week. The 2.25 percent security due in September 2023 rose 0.19, or 1.90 pounds per 1,000-pound face amount, to 93.685.
U.K. government bonds lost 5.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities dropped 3.1 percent and Treasuries declined 4.3 percent, the indexes show.
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