The British pound rallied to fresh highs, breaking through more barriers of resistance to reach a five-year high against a basket of currencies. Much stronger than expected UK manufacturing data led the pound to 11-month highs against the euro and to new two-year highs against the US dollar as investors continue to think ahead to rate hikes in the UK.
The US dollar gained against most peers as America’s data-heavy week got off to a resilient start, showing the door still slightly open to a Federal Reserve taper later this month. Manufacturing growth in the US rose at the fastest rate in two-and-a-half years in November, boding favourably for the services sector ISM Index due on and key non-farm jobs report.
Markets will focus on euro area producer price data for any signs of weaker price pressures which could push the ECB towards further monetary easing. Any big shift in UK construction data could have an impact on sterling ahead of Britain’s important service sector PMI survey.
Sterling
Fresh signs of a stronger recovery in the UK bolstered sterling sentiment even further, with sterling clocking five-year peaks on a trade-weighted basis, hitting an 11-month high against the euro, and strengthening to late August 2011 peaks against the US dollar. Britain’s manufacturing PMI showed growth unexpectedly accelerated to 58.4 in November, signalling the fastest rate of expansion since February 2011. The data added weight to expectations that the Bank of England could be on a slightly faster track towards an interest rate rise.
US dollar
The US dollar was on a firmer but still on vulnerable footing ahead of several US economic reports on services, GDP and jobs growth. The data, jobs in particular, should offer clues on whether the US economy has made enough progress for the Federal Reserve to slow stimulus as soon as the next meeting on December 17-18.
Euro
The euro surrendered a four-week high against the US dollar and sank to its lowest in 11 months against sterling, following news of weaker factory growth in France and Spain, the bloc’s second- and fourth-biggest economies, respectively. The euro had caught a short-lived boost after data showed a pick-up in inflation and an unexpected decline in unemployment. But the reports were still consistent with an economy struggling to recover, keeping elevated pressure on the European Central Bank to ease policy further.