Pound drops to lowest level in a week before UK labour data

[LONDON] The pound touched a one-week low versus the dollar before a report that economists say will show claims for unemployment benefits increased in June, having dropped a month earlier.

Sterling, the worst performing Group-of-10 currency in the past month, declined against all except one of its 16 major peers Tuesday even as data showed annual inflation accelerated more last month than analysts forecast.

As with the consumer-price numbers, the labour reports do not fully capture the period since Britain voted June 23 to leave the European Union.

The UK unemployment rate, as measured by International Labour Organisation standards, held at 5 per cent in the three months through May, according to the median forecast of analysts in a Bloomberg.

The labour reports are "pre-Brexit data points, so markets should discount them," said Petr Krpata, a London-based foreign-exchange strategist at ING Groep NV.

"In a sense they will give you information which doesn't reflect the current state of affairs."

The pound was little changed at US$1.3101 as of 7:13 am London time, after falling earlier to US$1.3065, the lowest since July 12. Sterling was at 84.09 pence per euro, from 84.07 on Tuesday.

ING's Mr Krpata said he remains bearish on the pound and predicts it will slide to US$1.23 in the next three months.

Surveys tracking output among UK services and manufacturing industries, as measured by purchasing managers, which are due on July 22 "will be very, very important as this will be one of the first data point which will reflect the post- Brexit mood," Mr Krpata said.

Eimear Daly, a G-10 currency strategist at Standard Chartered Plc in London, said that traders will focus on British Prime Minister Theresa May's visit with German Chancellor Angela Merkel ,where she is expected to discuss Britain's official exit from the EU and trade deals.

"Any kind of signs you would be able to have something in place before we officially exit the EU will be sterling supportive," Mr Daly said.

BLOOMBERG