Sterling slipped on Wednesday to a two-week low as the dollar rallied on strong US jobs figures and after data showed British manufacturing growth slowed unexpectedly in June. Numbers showed US private employers ramped up hiring to a six-month high in June, in a further sign of labour market strength that may allow the Federal Reserve to raise US interest rates later this year.
But in Britain, most investors do not expect the Bank of England to start hiking rates until the middle of 2016. BoE Chief Ecomomist Andy Haldane said this week that the bank should steer clear of an early interest rate hike, and warned of a strong pound's effect on growth. On Wednesday BoE chief Mark Carney said the central bank stood ready to take any action required in response to Greece's worsening debt crisis and any possible market contagion.
"I think the Bank of England can sometimes be a bit opportunistic," ING head of FX strategy, Chris Turner, said. "Perhaps the fact they're highlighting Greece ... as opposed to rate hikes as the main risk to the UK economy means perhaps they are wary of the broader monetary setting for the UK and would be wary that were they to focus on the risk of rate hikes in the UK, sterling could go too firm against the euro." Against the dollar, sterling fell 0.6 percent to $1.5620 after the US jobs numbers.
Earlier, a purchasing managers' index (PMI) for Britain's manufacturing sector fell to 51.4, lagging forecasts despite holding above the 50 mark that separates growth from contraction. "This (manufacturing) report is not good for the pound," Western Union market strategist, Nawaz Ali, said. "The strong currency has been a drag on exports and the manufacturing sector and echoes some of the concerns that we have had from the Bank of England recently."
Against the euro, the pound was flat at 70.90 pence. That was about a penny weaker than a seven-year high of 69.885 pence struck in a volatile start of the week. British government bond prices were on track for their heaviest one-day fall in more than a week, as they tracked German debt lower on the back of signs that Greece and its creditors may be able to reach a deal after all.
Hours after Greece became the first advanced economy to default on an IMF loan, 10-year gilt yields were 9 basis points up on the day at 2.11 percent, while 30-year yields jumped by 10 basis points. Gilt prices have now reversed roughly half of the gains made since the weekend when Greece imposed capital controls, closed its banks and announced a referendum on debt negotiations.
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