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Sterling backs away from 2-1/2 month high against euro after PMIs

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By Reuters
Sterling hits 2-1/2 month high against euro, investors eye PMI
Sterling hits 2-1/2 month high against euro, investors eye PMI   -   Copyright  Thomson Reuters 2021
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By Ritvik Carvalho

LONDON – Sterling backed away from 2-1/2 month highs against the euro on Wednesday after euro zone surveys of purchasing managers outshone Britain’s, while the British currency gained for a third session against the dollar.

Recent movements in the pound have been dollar-driven, as investors price in earlier than expected tapering of asset purchases by the Federal Reserve after the U.S. central bank last week signalled higher rates in 2023. But Wednesday’s PMIs put the focus squarely back on data.

Inflation pressures faced by British firms hit record levels this month, and growth in the private sector cooled only slightly from an all-time high in May when coronavirus restrictions were lifted, a survey showed on Wednesday.

The preliminary reading of the IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI) pointed to one of the strongest monthly improvements in business activity since 1998, with a reading of 61.7 – not far off May’s unprecedented 62.9.

The PMI for the services sector dipped to 61.7 in June from 62.9 in May. The index for the smaller manufacturing sector fell to 64.2 from 65.6.

Meanwhile, euro zone business growth accelerated at its fastest pace in 15 years this month as the easing of more lockdown measures and the unleashing of pent-up demand drove a boom in the bloc’s dominant services industry, a survey showed.

BOEPOLICYMEETING

The pound lost some of its morning gains to the euro after the data.

By 1010 GMT, sterling was less than 0.1% higher to the euro at 85.51, having hit 85.30 pence – its highest since April 6 – earlier in the session.

Against the dollar, sterling was higher by 0.1% at $1.3960, up for a third straight session.

“Stronger eurozone PMI responses and a weaker UK survey may have contributed to sterling weakening against the euro as the data were released over the morning,” said Oliver Blackbourn portfolio manager at Janus Henderson.

“However, it is unlikely that the data changes the picture for the Bank of England tomorrow,” he said, referring to a meeting of the bank’s Monetary Policy Committee on Thursday.

Britain’s top central bank officials still appear divided over whether to pull the plug on their 875 billion-pound ($1.2 trillion) government bond purchase programme, after inflation hit its highest in nearly two years.

Britain has delayed the final phase of its economy’s reopening by a month to July 19, aiming to use the extra time to speed up the country’s vaccination programme.

Sterling has been among the top performing ‘G10′ currencies this year on bets that Britain’s economy will reopen quicker than its peers due to its rapid progress with the COVID-19 vaccination programme. About 80% of Britain’s adult population has now received a first dose.

CFTC data shows speculators maintaining a net long position on the currency. [CFTC/] [IMM/FX]

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