Economy, Business And Markets

Sterling Official Rate Knocks Off 7-Month High

Sterling Official Rate Knocks Off 7-Month High Sterling Official Rate Knocks Off 7-Month High

The Central Bank of Iran officially lowered sterling's exchange rate versus the rial on Sunday, to keep pace with international developments in foreign exchange markets.

The pound's exchange rate was lowered 810 rials or 1.85 percent to 42,948 rials by the central bank as the British currency fell against all major currencies on Friday following poor manufacturing data. This is the largest devaluation by the bank for sterling in the past year, knocking it off seven-month highs against the rial. The central bank kept dollar and the euro nearly unchanged.

Things went much better for the pound in Ferdowsi Street – the center of foreign exchange trading in Tehran. It fell only 0.18 percent to 51,230 rials by 12:05 GMT in the first trading day of this week in Tehran, mostly resisting a drop due to low trading volume.

Saturday, the first trading day in Iran’s markets, was a holiday this week, moving the opening of trade to Sunday.

Sterling fell to a three-week low against the euro on Friday after a gauge of UK manufacturing tumbled, leaving the pound on track for its biggest weekly losses against the single currency in almost four years.

Financial data company Markit said its monthly Purchasing Managers’ Index (PMI) for manufacturing dropped to a seven-month low of 51.9 in April, below all the forecasts in a Reuters poll of 31 economists.

That added to worries about Britain’s economic recovery just six days before national elections that look unlikely to hand any party an overall majority. It followed data earlier in the week showing a sharper-than-expected slowdown in the first quarter of the year.

Sterling slid 0.7 percent against the euro to 73.62 pence, its weakest since April 6. That left it down almost three percent since Monday, its worst performance since June 2011, suffering as the single currency has rallied on improving euro zone data and rising bond yields.

The pound also fell to an intraday low of $1.5293, down 0.4 percent on the day.

“In terms of what’s happening in the labour market and wages, which are beginning to show signs of picking up, I wouldn’t be too concerned at this point, although (the data) is a fairly big miss,” said Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ.

Separate data released on Friday showed lending to British consumers rose in March by the most since before the financial crisis. Business borrowing showed its strongest rise in at least four years.

The cost of protection against volatility in the pound over the next week jumped. The one-week sterling/dollar implied volatility, which expires on May 8, rose to 14.775 percent, its highest since the Scottish independence referendum last September, Reuters charts showed.

Polls show the ruling Conservatives and the main opposition Labour Party virtually tied before the May 7 elections. Support for Scotland’s nationalist party has surged, making a hung parliament the most likely outcome.

“From a macro and longer term perspective, we see limited value in staking a sterling position before the election,” wrote Citi strategist Josh O’Byrne in a research note. “Further ahead, we’re more sceptical of a lasting spot bias from either side of government and think instead focus can shift to the state of the economy and the risk backdrop more broadly.”

UK government bond futures rose after the UK data. June gilt futures stood at 118.65, up 53 ticks on the day, from 118.57 just before the data. Ten-year gilt yields dipped 1 basis point to 1.79 percent, down 4.2 bps on the day.

Iran has a multiple exchange rate regime, with one rate set by the central bank and provided for by oil exports, and another decided in market trading but influenced be the bank. Sterling’s official rate is at a 19.2 percent discount to its market rate. The gap is almost 17 percent for the greenback.