Sterling index hits 10-week high

05 Nov, 2015

Sterling hit a ten-week high on a trade-weighted basis on Wednesday after data showed Britain's dominant services sector grew at a faster-than-expected pace in October, bolstering a view that growth is picking up in the final quarter. The purchasing managers' index (PMI) for the services industry rose to 54.9, up from September's 28-month low of 53.3 and above the 54.5 forecast in a Reuters poll of economists. That followed strong readings from parallel surveys of the manufacturing and construction sectors earlier in the week.
Data company Markit said its survey suggested overall economic growth in Britain had picked up to a quarterly 0.6 percent at the start of the fourth quarter, having slowed to 0.5 percent between July and September. Sterling rose to 70.75 pence against the euro after the data, its strongest since mid-August, and up around 0.4 percent on the day. That gain against the currency of the UK's biggest trading partner helped the Bank of England's trade-weighted sterling index reach a ten-week high of 93.7.
Against the dollar, sterling rose to $1.5446, from $1.5420 before the data' release. "The UK PMI data is encouraging. We sense the economy is set to outperform relative to the global backdrop, and to support ongoing foreign direct investment and M&A into the UK," said Mizuho's head of hedge fund sales in London, Neil Jones.
"Sterling should remain firm in the weeks and months ahead. Our preference is for sterling strength against the non-dollar bloc such as the euro, Australian dolllar and yen." Traders said the main focus for sterling this week was "Super Thursday", when the BoE releases its quarterly Inflation Report as well as an interest rate decision and the minutes from its latest Monetary Policy Committee (MPC) meeting. The central bank is expected to keep interest rates at their historic lows, with most economists expecting only MPC hawk Ian McCafferty to continue to vote for an immediate hike. But some reckon another of the nine MPC members could join him, with Kristin Forbes and Martin Weale seen as most likely. "With investors already discounting little risk for MPC tightening for the foreseeable future, any more hawkish rhetoric (would be) a bigger surprise," wrote Citi currency strategist Josh O'Byrne in a research note.

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