Sterling performed strongly against its major currency peers at the beginning of this week’s session as traders reacted to the latest in a long line of impressive UK Purchasing Managers Index results.
November’s robust Manufacturing PMI score of 58.4 outperformed analysts’ expectations of 56.1 and marked the best monthly expansion since February 2011. The resilience of the British Manufacturing Industry suggests that fourth quarter UK GDP should come in at least as strong, if not stronger, than the third quarter reading of 0.8%.
The Employment section of the PMI report, which showed that firms are currently hiring at the fastest rate for over two-and-a-half years, especially pleased investors. If jobs growth continues at this pace then the Bank of England may be persuaded to introduce higher interest rates sooner rather than later as Unemployment tumbles towards the Bank’s 7.0% threshold.
Sterling struck a fresh 27-month high of 1.6442 against the US Dollar and a fresh 357-day high of 1.2114 against the Euro yesterday. In addition the Pound stretched its recent run of gains against the Canadian Dollar to touch a new 4-year high of 1.7479.
Later this morning traders will be treated to November’s Construction PMI report. During October, Construction Output grew to a 6-year high of 59.4 and a strong, but slightly softer, figure of 59.0 is expected this time out.
With Mortgage Approvals rising through the roof and the Bank of England opting to rein in its Funding for Lending Scheme (FLS) in order to prevent another housing bubble, it seems highly possible that this morning’s Construction figures will beat the market consensus and this could bolster demand for the Pound.
The most important gauge of private sector output, the Services PMI, is due for release tomorrow morning. Accounting for around 75% of British GDP, the Services Industry is a highly watched barometer economic performance.
October’s Services PMI printed at a 16-year high of 62.5 and tomorrow’s figure is forecast to come in slightly weaker at 62.0. However, with the Confederation of British Industry (CBI) reporting last week that Service Sector firms are currently hiring at the fastest pace since November 2007, it is possible/probable that the PMI report could print at a fresh multi-decade high. Sterling would likely appreciate against its rivals under this scenario.
Later in the week the European Central Bank will announce its latest monetary policy plans for December. Soft inflation, catastrophic unemployment and anemic growth across the currency bloc could persuade the ECB to take deposit rates into negative territory. Any indication that ECB is willing to loosen policy further is likely to have a negative impact on the single currency.
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