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Sat 23 Jan 2021 11:00GMT

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Sterling Starts the Week Positively

Sterling rose against the euro on Monday after better-than-expected UK manufacturing data boosted confidence in Britain’s economic recovery and lessened the chances of fiscal stimulus from the Bank of England.

The Markit/CIPS’s headline manufacturing Purchasing Managers Index (PMI) rose to 54.9 in October, it’s highest level since July confounding economists’ expectations for a fall to 53.1.

The UK PMI data came less than a week after GDP data revealed the economy grew at twice the rate expected in the third quarter, weakening the hand of BOE doves calling for further quantitative easing.

Under such measures, the central bank would pump more pounds into the system by purchasing more UK assets from the market, which would inevitably lead to sterling depreciation.

Currency strategist Jane Foley stated “Sterling is off the hook with respect to QE, at least for now.

“There’s an awful lot of bad news in the price of the pound and plenty of scope for sterling to appreciate next year in the news consistently surprises on the upside.”

Relying on such a thing to happen however may not be wise, as the UK and more-over the pound seems to constantly be battling with itself with regard to supporting any significant growth in the economy and subsequent strength in Sterling.

Yesterday’s rally sparked by the PMI data led to sterling climbing to 1.1550, its highest level since October 5th.

Sterling’s broad gains took it to a near yearly high of $1.6083 against the US Dollar. This before some better than expected US manufacturing data saw the rate fall away a little towards the $1.60 level.

Data this week in the UK will fall on Thursday as the Bank of England’s Monetary Policy Committee announce what the decision is on UK Interest Rates. This is also when they will announce whether an increase of Quantitative Easing takes place, which now looks less likely.

PMI Construction and services on Tuesday and Wednesday respectively may give the market some direction. Growth in the construction industry, forecast to ease marginally in October, boosted last week’s surprisingly positive GDP data which continues to drive the pound upwards.

In a stark warning to many GBP sellers, Neil Mellor from Bank of New York said “Construction played such an important role in underpinning Q3 GDP. If it comes in weak the market might start to conclude it (GDP Data) was a one-off”.