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Pound Slides to Two-Week Low on Production Data; Gilts Advance

Posted by Chris Advincula on Oct 9, 2013 7:22:00 AM

The pound slid to the lowest level in two weeks versus the dollar after a report showed U.K. industrial production fell in August, casting doubt on the strength of the economy in the third quarter.

Britain’s currency depreciated versus all of its 16 major counterparts as separate data showed Britain’s goods-trade deficit narrowed less than economists forecast. Bank of England policy makers will keep their benchmark interest rate at a record low when they announce their policy decision tomorrow, according to a Bloomberg survey of analysts. U.K. government bonds rose for a third day.

“There’s a sense of disappointment in today’s data, which has weighed on the pound,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The pace of economic recovery in the U.K. may prove slightly less robust than anticipated.”

The pound fell 0.7 percent to $1.5978 at 11:24 a.m. London time, after reaching $1.5965, the lowest level since Sept. 24. The U.K. currency slipped 0.3 percent to 84.66 pence per euro.

Industrial output dropped 1.1 percent from July, when it increased 0.1 percent, the Office for National Statistics said today in London. The median forecast of 30 economists in a Bloomberg News survey was for an increase of 0.4 percent.

The goods-trade deficit narrowed to 9.63 billion pounds in August from a revised 9.94 billion pounds, the ONS said in a separate report. Economists in a Bloomberg survey predicted the deficit would shrink to 8.85 billion pounds.

Economic Surprises

Sterling declined 1.3 percent in the past week, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 0.4 percent and the euro was little changed.

Citigroup Inc.’s Economic Surprise Index for the U.K. fell to 48.80 yesterday, the lowest since Aug. 1. The gauge, which shows whether data beat or fell short of economists’ forecasts, climbed to a nine-month high of 113.30 on Aug. 19.

“The pound is being driven lower by the weak data,” said Lee McDarby, executive director of U.K. corporate foreign-exchange sales at Nomura International Plc in London. It “is in stark contrast to the strong U.K. figures we saw during the summer.”

The Bank of England will leave its key interest rate at a record-low 0.5 percent this week and keep its bond-purchase plan unchanged, according to two surveys of economists. The central bank, which will announce the decisions at noon tomorrow, has said it will keep the benchmark rate unchanged until unemployment, currently at 7.7 percent, falls below 7 percent.

The 10-year gilt yield fell four basis points, or 0.04 percentage point, to 2.66 percent. The 2.25 percent security due in September 2023 rose 0.3, or 3 pounds per 1,000-pound face amount, to 96.445.

Gilts lost 2.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 1.8 percent and U.S. Treasuries declined 2.5 percent. 

 

gbp.10.9 resized 600

Chart: WorldWideMarkets Alpha Trader

 

 

GILTS.10.9 resized 600

Source: Bloomberg

 

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