Sterling rose against the dollar on Tuesday, bolstered by a stronger-than-expected report on Britain's construction sector, with some investors adding to favourable bets ahead of a survey on the services sector. The monthly construction purchasing managers' index (PMI) rose to 59.1 from December's 17-month low of 57.6, topping all forecasts in a Reuters poll and far above the 50 mark that separates growth from contraction.
Optimism about the next year increased for the first time in three months, albeit only a little from December's 16-month low, and the numbers also followed a firmer-than-expected survey of the manufacturing sector on Monday. That was in sharp contrast to data from the United States, where new orders for factory goods fell for a fifth straight month in December, dragging the dollar lower. Sterling rose to $1.5095, up from $1.4999 before the UK data was released and well above an 18-month low of $1.4952. It lagged the euro, which was broadly stronger.
The euro was up 0.45 percent at 75.70 pence. Sterling has fallen around 11 percent against the dollar in the past six months as investors pushed back expectations of when the Bank of England will start raising interest rates. It is also being affected by political uncertainty before May's national election. "In order to make a case for rising or falling rate expectations from the current levels we need some serious big improvement in data or a big deterioration," said Manuel Oliveri, a currency strategist at Credit Agricole in London.
"Unless that happens, rate expectations will stay flat for now, and hence we won't get any big currency moves for sterling right now." Oliveri said investors did not focus too heavily on the construction sector, which only makes up around 6 percent of gross domestic product, and the survey for the dominant services sector would be more important. That index is forecast to rise to 56.3 in January from 55.8 in December. "Tomorrow's services PMI is more significant... It is there we expect to see the most meaningful and quickest positive reaction to consumers benefiting from lower petrol prices," RBC Capital said in a note.