London: The pound fell against the dollar for a third week, reaching a 16-month low, as reports showed growth in manufacturing and the housing market slowed, spurring bets the Bank of England will refrain from raising interest rates.
Gilts added to 2014’s returns, the best since 2011, after European Central Bank President Mario Draghi said in an interview that he can’t rule out the risk of deflation in the 19-nation bloc, the UK’s biggest trading
partner.
Sterling was little changed versus the euro as falling oil prices stoked speculation that lower energy costs will keep a lid on inflation and delay an increase in BoE borrowing costs while the ECB prepares to expand stimulus.
“Recent UK data suggested growth may have peaked,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “That supports a view that sterling will probably weaken against the dollar as the US economy outperforms.”
The UK currency dropped 1.3 percent in the week to $1.5357 as of 5:32 pm. London time yesterday, when it reached $1.5354, the lowest since August 2013.
Sterling was at 78.18 pence per euro, having gained 6.9 percent last year against the common currency.
Markit Economics said yesterday its manufacturing purchasing managers index fell to 52.5 from a revised 53.3 in November. A reading above 50 indicates expansion. Economists forecast the gauge would rise to 53.6 from a previously reported 53.5 in November, according to the median of estimates in a Bloomberg News survey of economists.
House prices rose 7.2 percent in December from a year ago, compared with an 8.5 percent gain in the previous month, Nationwide Building Society said on December 30.
The Bank of England will keep the benchmark base rate unchanged at a record-low 0.5 percent when officials announce their next policy decision on January 8, according to all 42 economists in a survey.
The central bank won’t start raising the rate until the third quarter of this year, the median of analyst estimates compiled by Bloomberg show. The pound may decline further against the dollar as positioning data suggests investors are increasingly bearish about the currency outlook.
Wagers by hedge funds and other large speculators on the pound’s decline against the dollar exceeded those on a gain by 15,233 contracts in the week through December 23, the first increase in three weeks, data from the Chicago Mercantile Exchange.
Bloomberg
