Sterling weakens on soft UK services PMI; BoE decision eyed

Reuters: [2008-05-06 16:41:00]

LONDON, May 6 (Reuters) - Sterling weakened on Tuesday after data showed the UK service sector stagnated in April, providing further evidence the credit crunch is biting into economy growth and raising the chance of another interest rate cut perhaps as soon as Thursday.

The Chartered Institute for Purchasing and Supply/NTC service sector purchasing managers index fell to 50.4 in April, signalling meagre growth and its lowest level in five years, from 52.1 in March. Analysts had expected a decline to 51.6.

The UK economics teams at two heavyweight investment banks -- JP Morgan Chase and Deutsche Bank -- subsequently changed their forecast for this week's Bank of England policy meeting to a quarter percentage point cut to 4.75 percent.

Financial markets attatch a roughly 40 percent chance of a cut from the Bank's Monetary Policy Committee this week.

"As a result of the recent softer economic news, we have decided to revise our call from unchanged rates to a 25 bps move at this week's meeting," Deutsche's George Buckley said.

"However, we would reiterate that we think the risks are very finely balanced. Should we be wrong on this new call and the MPC opts to keep rates on hold on Thursday, then we expect they will instead cut next month. At the very least, we believe that the market is not appropriately priced for the risk of a cut on Thursday."

At 1430 GMT the euro was up 0.4 percent on the day against the pound at 78.90 pence <EURGBP=>, and the BoE's broad trade-weighted sterling index was down two thirds of a percent on the day at 93.10 <=GBP>.

Sterling edged up 0.2 percent against the struggling dollar to $1.9760 <GBP=>, bouncing back more than a cent from the post-PMI lows as the greenback slumped in the wake of weak Fannie Mae earnings and a lower open on Wall Street.

Implied interest rate spreads mostly moved against sterling following the UK services sector data, eroding the pound's relative attractiveness to currency traders and investors.

The difference of implied rates on December UK rates futures over comparable euro zone contracts tightened around 5 basis points to 66 basis points, Reuters charts showed.

The MPC cut rates by a quarter percentage point to 5.0 percent last month for the third time in five months. But the 6-3 vote in favour of the move was a surprise.

One MPC member wanted more aggressive easing, while two voters wanted to keep rates on hold in the face of high food and energy prices.

Before Thursday's rate decision, however, manufacturing and industrial output figures for March on Wednesday could provide sterling and UK rates traders with more clues on the BoE's likely policy path. See [ECONGB].

((Reporting by Jamie McGeever; editing by Ian Jones; Reuters Messaging: jamie.mcgeever.reuters.com@reuters.net; +44 207 542 8510))

Keywords: MARKETS FOREX/STERLING

Sterling falls, gilts up after softer UK services PMI

Reuters: [2008-05-06 10:42:00]

LONDON, May 6 (Reuters) - Sterling extended losses on Tuesday, while UK rate futures rallied after service sector data came in weaker than expected, in a further indication of the tussle between a slowing UK economy and rising inflation.

The Chartered Institute for Purchasing and Supply/NTC purchasing managers' index fell to 50.4 from 52.1 in March, the lowest reading since March 2003 and below analysts' forecasts <ECONGB> for a reading of 51.6.

Confidence in the sector fell to its lowest since the aftermath of the attacks on the United States in 2001, with fears intensifying about the impact of the credit crunch on the economy beyond the hard-hit financial sector.

The pound fell roughly half a cent to $1.9653 <GBP=>, while the euro rallied to 78.76 pence, up almost a third of a percent on the day <EURGBP=>.

The June long gilt future <FLGM8> extended gains to stand 46 ticks higher on the day, having been 35 ticks higher beforehand.

Short sterling interest rate futures rallied to stand as much as eight ticks higher in back-month contracts.

Britain's FTSE 100 <.FTSE> was little changed after the data, down 11.4 points, or 0.2 percent at 6,204.1.

"The UK data was definately worse than expected," said Simon Derrick, head of currency research at Bank of New York Mellon.

"It only cements the idea that we are in a slowdown in the UK economy. We're above the boom-bust level of 50, but we're getting close to the contraction level." (Reporting by London Markets Team)

((RM:veronica.brown.reuters.com@reuters.net; Tel: +44 207 542 6745))

Keywords: MARKETS FOREX/STERLING

Sterling eases vs dlr, euro; eyes on services data

Reuters: [2008-05-06 09:46:00]

LONDON, May 6 (Reuters) - Sterling fell against the dollar and euro on Tuesday as markets braced for further erosion in UK service sector data for April, which came within a whisker of four-and-half year lows in March.

A weak reading of the services purchasing managers index could compound the problems faced by Bank of England policymakers when they meet this week as they try to balance slowing growth with rising inflation pressures from sky-high oil and food prices.

The index is expected to fall to 51.6 in April versus 52.1 in March, still above the 50 mark that divides expansion from contraction.

"If the data comes in weaker it's going to reinforce the view that activity in the UK is slowing. Sterling will remain vulnerable to downside pressure," said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

By 0727 GMT, the pound was down almost 0.2 percent versus the dollar at $1.9686 <GBP=>, while the euro was steady at 78.54 pence but was roughly 3 percent away from record highs hit last month at 80.98 pence <EURGBP=>.

The BoE kicks off its two-day rate meeting on Wednesday and and most economists expect that UK borrowing costs will be kept on hold at 5 percent. [BOE/INT]

However, rates are still expected to ease in coming months as policymakers try and navigate through the impact of an ongoing global crisis in credit markets that started last August.

The BoE's twice-yearly Financial Stability Review last week found the scale of losses and the economic fallout from the credit crunch may not be as bad as feared and subprime write-offs might end up costing less than half market forecasts [ID:nL01588933].

Having initially reacted positively to the report, investors remain nervous due to increasingly poor economic data and tightened credit conditions.

Three-month sterling London interbank offered rates (Libor) <GBP3MFSR=> remain well above the BoE base rate of 5 percent, with many banks still reluctant to pass on official rate cuts to mortgage borrowers.

"There is definitely evidence that the credit crunch is impacting. We remain quite concerned about the outlook for the UK economy," AIB's Concagh said.

(Reporting by Veronica Brown; Editing by Ruth Pitchford)

((RM:veronica.brown.reuters.com@reuters.net; Tel: +44 207 542 6745))

Keywords: MARKETS STERLING OPEN

Stg hits 5-wk high vs euro, shrugs off house data

Reuters: [2008-05-02 10:16:00]

LONDON, May 2 (Reuters) - Sterling hit a five-week high versus the euro on Friday as weak UK housing data was overshadowed by a large euro/sterling sell order, which traders said had a disproportionate market impact due to low liquidity.

With national holidays in much of Europe this Thursday and one coming up in the UK and Japan at the start of next week, liquidity in currency markets has been severely reduced, accentuating any flow-related moves, market participants said.

Sterling -- whose fortunes have closely been linked to those of the financial sector in recent months -- also got some support from a rise in banking shares and a general improvement in risk appetite.

The flows and a higher open on European stock markets overshadowed a second survey in less than a week showing UK house prices fell on the year for the first time since the late 1990s.

"There is some selling of euro/sterling going on from one of the banks and any orders which are going through are producing a bit more of an exaggerated reaction in the market because conditions are thin," said Steve Barrow, chief currency strategist at Bear Stearns.

"The economic news has not been too great overnight ... so if anything you might have expected sterling to be a bit in the soft side with developments in the UK," he said.

A trader said the sell order in euro/sterling was from a French bank and related to merger and acquisition activity.

Dealers also said sterling was still benefiting from a Bank of England report this week that suggested the cost of the global credit crunch may not be as much as some expected [ID:nL01588933].

"If you think the financial services crisis is ending, you buy the economy with the largest share of financial services. You buy UK," a UK-based trader said.

The euro hit a five-week low of 77.91 pence <EURGBP=>.

By 0805 GMT, sterling was down 0.4 percent at $1.9841 <GBP=>, bouncing off a session low of $1.9724 hit in the immediate aftermath of the housing data.

The Halifax said prices in the three months to April fell 0.9 percent versus a year ago. That was steeper than the consensus forecast was for a 0.8 percent decrease, and initially sent sterling to session lows versus the euro and the dollar.

But the market impact was limited by the fact that a housing market slump is widely priced in and economists already expect two more interest rates cuts by year end from 5 percent.

The National Institute of Economic and Social Research (NIESR) forecast on Friday that Britain would grow by just 1.8 percent in 2008 after 3.0 percent last year, saying the economy was in its "most precarious position in over a decade". (Reporting by Toni Vorobyova, editing by Mike Peacock) ((antonina.vorobyova@reuters.com; Tel: +44207 542 7958, Reuters Messaging: antonina.vorobyova.reuters.com@reuters.net))

Keywords: MARKETS STERLING OPEN

Sterling hits session lows on weak housing data

Reuters: [2008-05-02 09:08:00]

LONDON, May 2 (Reuters) - Sterling hit session lows against the dollar and the euro on Friday after another housing survey showed the first annual fall in property prices in around a decade, boosting expectations for interest rate cuts.

The Halifax house price survey showed prices in the three months to April falling 0.9 percent versus a year ago. Consensus forecast was for a 0.8 percent fall.

"The survey reflects the weakening tone we've seen in other housing data and continued downside risks for sterling," said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

"The expectation is that this will filter through to consumer spending and reinforces the view that the BoE will cut interest rates again but they will remain cautious in the way they do it," she added.

Sterling fell to a session low of $1.9724, down around 40 ticks from pre-data levels <GBP=>, before paring losses. The euro rose as high as 78.38 pence <EURGBP=>.

(Reporting by Veronica Brown and Toni Vorobyova)

((antonina.vorobyova@reuters.com; Tel: +44207 542 7958, Reuters Messaging: antonina.vorobyova.reuters.com@reuters.net))

Keywords: MARKETS STERLING