Strong UK factory data sends ster­ling to 11-month high

Kuwait Times - - BUSINESS -

Bri­tain’s pound climbed to its high­est lev­els against the dol­lar since mid-Sep­tem­ber yes­ter­day, as data show­ing UK factory ac­tiv­ity growth re­cov­ered from a seven-month low in July eased con­cerns about an eco­nomic slow­down. The Pur­chas­ing Man­agers’ In­dex (PMI) sur­vey for Bri­tain’s man­u­fac­tur­ing sec­tor climbed to 55.1, ex­ceed­ing the 54.4 con­sen­sus in a Reuters poll of econ­o­mists, helped by the big­gest in­flux of new ex­port or­ders since 2010.

The num­bers should hearten pol­i­cy­mak­ers at the Bank of Eng­land, which will make a pol­icy de­ci­sion and re­lease its lat­est quar­terly In­fla­tion Re­port to­mor­row, and should soothe in­vestors’ fears that eco­nomic growth is de­te­ri­o­rat­ing rapidly after a slug­gish start to the year.

A run of weak data has - along with deep un­cer­tainty about the im­pact of Brexit on the econ­omy - cooled spec­u­la­tion that the BoE is poised to start re­mov­ing its cri­sis-level stim­u­lus, which fol­lowed a se­ries of hawk­ish re­marks by pol­i­cy­mak­ers at the banks in re­cent months.

But the lat­est num­bers were not in them­selves enough to sub­stan­tially change the out­look ei­ther for ster­ling or for the BoE, said BNP Paribas cur­rency strate­gist Sam Lyn­ton-Brown. “The data was slightly bet­ter than ex­pected but it shouldn’t mean much for ster­ling, par­tic­u­larly this week, when we have more im­por­tant data flows - the Bank of Eng­land’s quar­terly In­fla­tion Re­port and also the ser­vices PMI,” he said, re­fer­ring to equiv­a­lent data from the ser­vices sec­tor due to­mor­row.

“Aside from the fact that it was only a mod­er­ate upside sur­prise, the man­u­fac­tur­ing sec­tor is a small con­trib­u­tor in com­par­i­son with ser­vices to the growth out­look, and so is not that im­por­tant for the Bank of Eng­land.” While a push-back of rate hike ex­pec­ta­tions has helped drive the pound to nine-month lows against the euro, it has not been enough to out­weigh pes­simism around the US dol­lar.

Ster­ling climbed as high as $1.3240 after the data’s re­lease and was still trad­ing at around that level by 1420 GMT, as data show­ing US con­struc­tion spend­ing un­ex­pect­edly fell in June weighed on the dol­lar. Against the euro the pound gained 0.3 per­cent on the day to trade at 89.35 pence, but that was less than a cent away from last week’s lows.

In­vestors added to bets against the pound in the week up to last Tues­day, data showed on Fri­day, hav­ing taken them to their low­est in six­teen months the pre­vi­ous week.

“Hold­ers of ster­ling will be cross­ing their fin­gers for a sur­prise in­ter­est rate rise (on Thurs­day),” said Jake Trask, FX Research Di­rec­tor at OFX. “How­ever, dis­ap­point­ing Q2 GDP fig­ures and a re­cent un­ex­pected drop in in­fla­tion make this highly un­likely, es­pe­cially with Kristin Forbes - who pre­vi­ously voted for a rise in rates - hav­ing left the (mone­tary pol­icy) com­mit­tee.” —Reuters

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