Pound falls, gilts tick higher after weak UK data

Pound falls, gilts tick higher after weak UK data Sterling fell versus the euro and the dollar on Monday, while gilts and UK interest futures ticked higher after data from Britain's manufacturing and service sectors came in below forecast.

UK industrial output unexpectedly fell on the month in September, while growth in the service sector eased to its slowest pace in more than four years in October.

"It was justified that it (sterling) turned lower because it (the data) was weaker than expected," said Daragh Maher, a currency strategist. "We seem to have had a run of soft data and so we run the risk of nasty pullbacks (in sterling)."

The pound was supported last week by comments from policymakers implying that an interest rate cut from the Bank of England was not imminent.

Services figures and manufacturing and industrial output data are released at 0930 GMT, giving further clues to the state of the British economy and prospects for a rate cut in December.

The yen strengthened against the pound as it was boosted by Bank of Japan governor Toshihiko Fukui's comments that the central bank would raise interest rates before too long.

The dollar fell to one-week lows versus the yen on Monday, weighed down by fears of major losses at financial firms from credit market turmoil, while the Japanese currency benefited from hawkish policymaker comments.

Bank of Japan governor Toshihiko Fukui said that a timely interest rate hike was needed and that keeping rates too low could pose risks in the future.

With Japanese rates at just 0.5 percent, the yen provides a source of cheap borrowing for investors wishing to purchase higher-return assets in so-called carry trades. But any rallies in the yen, as well as any pick ups in market volatility, can easily wipe out profits from such trades, so investors tend to unwind them in periods of increased risk aversion, benefiting the yen.

The dollar's failure to sustain gains above 115.00 yen last week after the strong jobs data suggested the yen's potential to rise against the U.S. currency, traders said.

U.S. employers added 166,000 jobs in October, more than double analysts' median forecast, but the data was seen as just a fleeting sign of economic strength, and expectations grew that the Federal Reserve will keep cutting rates to support growth.

Monday features the U.S. Institute for Supply Management's non-manufacturing index for October, as well as speeches by New York Fed governor Frederic Mishkin and Atlanta Fed governor Randall Kroszner.

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