U.K. Pound Drops Versus Dollar as Services Data Misses Estimate

By Emma Charlton - Jan 6, 2011 6:26 PM GMT+0800l

The pound weakened against the dollar after a report showed U.K. services industries unexpectedly shrank in December for the first time in more than 1 1/2 years.

The British currency erased its advance against the euro after Markit Economics Ltd. and theChartered Institute of Purchasing and Supply said its gauge of services activity fell to 49.7 from 53.0 in November. Economists forecast a decline to 52.8. A reading below 50 indicates a contraction.

“It was much worse than predicted,” said John Hydeskov, senior foreign-exchange analyst at Danske Bank A/S in London. “The reaction to this number is quite large. The service component is very, very important.”

Sterling declined 0.2 percent to $1.5485 as of 10:24 a.m. in London after earlier climbing 0.3 percent. Against the euro, the U.K. currency was little changed at 84.75 pence.

U.K. government bonds declined, with the yield on the 10- year gilt three basis points higher at 3.58 percent. The 4.75 percent security due March 2020 fell 0.255, or 2.55 pounds per 1,000-pound ($1,548) face amount, to 109.09. Two-year yields were two basis points higher, at 1.21 percent.

The decline pushed the yield on the 10-year gilt up to the highest level in a week before the sale of 2.75 billion pounds of securities maturing in September 2020.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net