GBP Drops As UK Manufacturing Loses Steam

The pound fell to the lowest level in more than a year against the dollar after a report showed U.K. manufacturing growth unexpectedly slowed last month, reducing pressure on the Bank of England to raise interest rates.

Sterling weakened a second day versus the euro after the data based on a survey of purchasing managers showed overseas orders stagnated, highlighting Britain’s dependency on domestic demand. Short-dated government bonds outperformed their longer-maturity peers as investors scaled back bets on a rate increase after European Central Bank President Mario Draghi said he can’t exclude the risk of deflation in the euro area, Britain’s biggest trading partner.

“The pound fell today as the manufacturing PMI report was consistent with the latest trend in the U.K. data showing recovery but at a declining pace compared with market expectations,” said Athanasios Vamvakidis, head of Group-of-10 currency strategy at Bank of America Corp. in London. “U.K. data is still good. But given that inflation is also below expectations, we expect the BOE to take its time before raising interest rates.”

The U.K. currency dropped 1 percent to $1.5424 at 12:37 p.m. London time after sliding to $1.5413, the lowest since August 2013. Sterling depreciated 0.5 percent to 78.08 pence per euro after strengthening 6.5 percent against the common currency last year.

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 Dec. 23, the first increase in three weeks.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza