The pound fell to its lowest since June 2010 against the dollar as a report showed U.K. industrial production declined the most in almost three years in November.
Sterling dropped at least 0.5 percent against all of its 16 major peers and approached the weakest level since February against the euro. The move in the U.K. currency came before the Bank of England announces its latest policy decision on Jan. 14. Concerns about Britain’s future in the European Union and an uneven domestic economic recovery have weighed on the pound since the start of the year and prompted markets to further delay their calls on the timing of when the BOE will lift interest rates from their record low.
“The weak industrial production report is just enough to get you selling again,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. “With all the problems the U.K. is having -- strong pound, Brexit, the dollar is probably set to turn higher -- I could certainly see it in the low 1.40s from here, no problem at all.”
The pound fell 1 percent to $1.4394 as of 4:22 p.m. London time, after touching $1.4352, the lowest since June 2010. Sterling depreciated 0.9 percent to 75.31 pence per euro having touched 75.55 pence on Monday, the weakest since Feb. 4.
Industrial output dropped 0.7 percent from the previous month, the Office for National Statistics said in London on Tuesday. Economists had forecast no growth on the month. Manufacturing also delivered a lower-than-forecast performance in November, with output dropping 0.4 percent on the month.
“The numbers are weaker than expected,” said Stuart Bennett, London-based head of Group-of-10 currency strategy at Banco Santander SA. The pound sold off on “the back of it but now weak U.K. numbers are not new information.”
Rate Forecasts
JPMorgan Chase & Co. pushed back forecasts for a BOE rate increase to November from May on Tuesday, citing “weakness” in U.K. industrial production. ING Groep NV, Goldman Sachs Group Inc. and Rabobank International last week delayed forecasts into the fourth quarter of this year.
Deutsche Bank AG strategists including New York-based Sebastien Galy recommended investors should go short sterling versus the dollar and the Swedish krona in their latest report Tuesday. A short position is a bet a currency will decline.
BOE officials will keep their key interest rate at a record-low 0.5 percent when they announce their decision on Thursday, according to all 45 economists surveyed by Bloomberg. Traders will comb through the minutes of the meeting to see whether more hawkish policy makers have changed their minds on the potential for higher borrowing costs and also the Monetary Policy Committee’s thinking on the fall in oil prices and worries about China’s economy.
Forward contracts based on the sterling overnight index average, or Sonia, aren’t pricing in a quarter-point increase until after February 2017, data compiled by Bloomberg show.
U.K. government bonds rose, with the benchmark 10-year gilt yield falling two basis points, or 0.02 percentage point, to 1.76 percent. The 2 percent security due September 2025 climbed 0.155, or 1.55 pounds per 1,000-pound face amount, to 102.12.
by Anooja Debnath and Manisha Jha
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