Ster­ling gains on the euro ahead of rate hike

Irish Independent - Business Week - - BUSINESSWEEK - Colm Kelpie

STER­LING has jumped to a four- and-a-half month high against the euro amid stronger man­u­fac­tur­ing data out of the UK.

It comes ahead of a much an­tic­i­pated Bank of Eng­land meet­ing to­day in which gov­er­nor Mark Car­ney is ex­pected to an­nounce the bank’s first in­ter­est rate rise in a decade.

The pound hov­ered above the 87p to the €1 mark – a level not seen since June – as data showed Bri­tish man­u­fac­tur­ers re­ported ro­bust growth for Oc­to­ber, re­in­forc­ing spec­u­la­tion of a rate hike.

Ster­ling has also gained some ground thanks to more pos­i­tive sound­ings over the Brexit talks.

Al­though the mar­ket is al­most com­pletely priced in for a rate rise de­ci­sion from the BoE this week, in­vestors are watch­ing closely for any signs that it could spell the start of a longer-term tight­en­ing cy­cle.

The man­u­fac­tur­ing pur­chas­ing man­agers’ in­dex (PMI) from IHS Markit/CIPS rose to 56.3 in Oc­to­ber, from an up­wardly re­vised 56.0 in Septem­ber.

“The three-month av­er­age was the high­est of the year so far... so the pound ral­lied,” said Stephen Gallo, Euro­pean head of for­eign ex­change strat­egy at BMO Cap­i­tal Mar­kets.

The pound also climbed against the dol­lar, hit­ting a two-week high of $1.3321, up from $1.3283 be­fore the data.

Board meet­ing min­utes re­leased from the Cen­tral Bank yes­ter­day for Septem­ber high­lighted the “rel­a­tively siz­able fluc­tu­a­tions in the euro/ster­ling ex­change rate”.

“The im­pact of the weaker ster­ling had been mainly re­flected in Ire­land through weaker con­sumer price in­fla­tion, which would have im­pacted favourably on real dis­pos­able in­comes and per­sonal con­sump­tion,” the re­port of the meet­ing stated.

Data for the Ir­ish man­u­fac­tur­ing sec­tor showed a weak­en­ing in the level of growth, which slowed to the weak­est pace in seven months. The rate of job cre­ation picked up, how­ever, and in­fla­tion eased slightly.

The sea­son­ally ad­justed In­vestec Pur­chas­ing Man­agers’ In­dex dipped to 54.4 in Oc­to­ber from 55.4 in Septem­ber.

New or­ders con­tin­ued to in­crease at a sharp pace in Oc­to­ber, de­spite the rate of growth eas­ing from that seen in Septem­ber. Some pan­el­lists men­tioned strength in ex­port mar­kets. In fact, new ex­port busi­ness rose at the fastest pace in four months.

“The re­port shows that, de­spite a re­cent slow­down, the rate of growth in new or­ders re­mains sharp, helped by over­seas de­mand – the new ex­port or­ders in­dex ac­cel­er­ated to a four month high, with many pan­el­lists re­port­ing stronger de­mand from Euro­pean and Asian mar­kets,” said In­vestec econ­o­mist Philip O’Sul­li­van.

“In re­sponse to this healthy de­mand, Ir­ish man­u­fac­tur­ers con­tinue to add to their head­counts, with the em­ploy­ment in­dex ex­pand­ing at its fastest rate since June.”

Mean­while, the Com­mis­sion min­utes also sep­a­rately noted that the Cen­tral Bank be­lieved that while the bank­ing sec­tor here was pre­pared for Brexit, there were con­cerns over the readi­ness of the in­sur­ance in­dus­try: “Mr [Ed] Si­b­ley [deputy gov­er­nor] agreed that the level of pre­pared­ness within the in­sur­ance sec­tor was not where it should be.”

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