The pound fell the most in four weeks versus the dollar after a report showed U.K. retail sales unexpectedly dropped in August.
U.K. government bonds surged, with 10-year yields dropping to the lowest level in two weeks, after Federal Reserve policy makers yesterday unexpectedly refrained from paring their quantitative-easing program. Sterling climbed to an eight-month high versus the dollar yesterday after Bank of England minutes of the Monetary Policy Committee’s September meeting showed recent data “presented an upside risk to the growth profile.”
“Retail sales has proved a bit of a reality check for sterling,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “There had a decent run of better than expected data in the U.K. which had been pushing the pound higher and the Fed just gave it last push above $1.60. It had the wind taken out of its sails a bit.”
The pound slipped 0.5 percent to $1.6068 at 10:08 a.m. London time, the biggest decline since Aug. 22. It climbed to $1.6163 yesterday, the highest since Jan. 11. The U.K. currency weakened 0.8 percent to 84.40 pence per euro.
Retail sales including fuel dropped 0.9 percent from July, the Office for National Statistics said. The median forecast of 20 economists in a Bloomberg News survey was for a 0.4 percent gain.
The 10-year gilt yield dropped 15 basis points, or 0.15 percentage point, to 2.85 percent, after sliding to 2.83 percent, the lowest since Sept. 3. The 2.25 percent bond due in September 2023 rose 1.26, or 12.60 pounds per 1,000-pound face amount, to 94.815.
The Debt Management Office is scheduled to auction 4.75 billion pounds of five-year gilts today.
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