Sterling slid to a two-week low against the dollar on Friday after a survey showed UK manufacturing growth slowed slightly in October, contrasting with an improvement in an equivalent US survey. The UK's manufacturing purchasing managers' index (PMI) fell to 56.0 last month from a downwardly revised 56.3 in September and was below expectations for a reading of 56.1.
While it stayed well above the 50 level which signals growth in activity, still suggesting a solid economic recovery, many investors were sceptical that the recent strength in UK data would be sustained. Sterling fell 0.75 percent on the day to $1.5917, its lowest since October 16.
"The PMI data was decent, but that doesn't mean to say sterling can't remain below $1.60 in the coming weeks," said Sasha Nugent, analyst at Caxton FX. "Sterling has run out of steam in terms of the extent to which data can surprise the market." More losses could see the pound drop towards chart support at $1.5911, the 55-day moving average, and the October 16 low of $1.5894, which would be its weakest since mid-September.
The dollar was firmer after a survey showed that manufacturing in the United States expanded at its fastest pace in two and a half years in October, indicating the US economy may have weathered last month's government shutdown well. The data helped the dollar extend broad gains after Wednesday's Federal Reserve statement was interpreted as leaving the door open to scaling back stimulus as soon as December.
"A close below $1.6000 this week would open up $1.5890/925 to the downside, which if broken could see cable (sterling/dollar) trend towards $1.5530/600 by year's end," Christopher Vecchio, currency analyst at DailyFX, said in a note. But analysts said the pound could notch up more gains against a weak euro due to the contrasting economic pictures in the UK and the euro zone, where concerns are growing about the risks of deflation and rising unemployment.
The euro was last down 0.1 percent at 84.69 pence, having earlier hit a two-week low of 84.45 pence. Very weak euro zone inflation data on Thursday prompted market speculation that the European Central Bank may cut interest rates in order to boost the economy, possibly as soon as next week. British government bond prices fell to a 10-day low on Friday, led down by US Treasuries following the stronger-than-expected US manufacturing data. Ten-year gilt yields were 2 basis points higher on the day at 2.64 percent at 1505 GMT, moving away from near-three-month lows below 2.55 percent set earlier in the week.