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Pound Rallies on Manufacturing Boom

Sterling managed a reasonable rise against the Dollar during Asian trade, riding a relatively strong wave of support after last week’s surprising jump in UK economic growth; the Dollar is still struggling to find its feet under the shadow of more quantitative easing.

The pound had risen marginally above the psychologically key $1.60 level, approaching its highest since late January, as investors awaited UK manufacturing activity data due for release this morning. Clients who are selling currency into the pound should be cautious of this release.

This morning saw the release of the last quarters manufacturing data which posted higher than the predicted 53.1. Due to this the pounds exchange rate has driven higher again. Against the Euro the rise was around half a point in 15 minutes and against the Dollar resistance was broken and the momentum remains good.

Manufacturing is still a relatively low impact data release and its impact could be short lived.

“Sterling is still all about the GDP data we had last week. But the 64,000 pound question is whether it is going to impact on QE,” said Neil Mellor at Bank of New York Mellon.

“The manufacturing data today would have to be an extraordinarily strong figure to affect cable at the moment.”

Data last week showing the UK economy grew 0.8 percent in July-September, twice as much as expected, would also help to prop up the pound, analysts said.

“The relatively strong UK Q3 GDP combined with the likelihood of a QE extension from the Fed but no move from the MPC this week suggests there may be some scope for further gains,” analysts at Lloyds TSB said in a note.

The stock markets will be experiencing some volatility due to the slew of company results on the agenda. The FTSE is up almost 1% already today with some companies expected to report substantial profits last quarter. The impact of exchange rates will be limited.