Sterling strengthens on better-than-expected manufacturing data

Tom Tong02/Nov/2010Currency Updates

GBP

Sterling received a boost yesterday after better-than-anticipated manufacturing and PMI data. The UK manufacturing sector started Q4 with a boom as export orders rose sharply. Additionally, the PMI (Purchasing Managers Index) rose to 54.9 compared to a 10 month low in September. This batch of better-than-expected data saw sterling rise against the euro and the dollar with the report lifting hopes that the Bank of England may avoid a second round of stimulus.

USD

The dollar recovered from initial losses against the euro and the yen after a bigger-than-expected rise in US and Chinese manufacturing activity but remained under pressure ahead of the Fed meeting. Investors turned on their heels following the manufacturing data, which is the last key data before the Federal Reserve policy-setting meeting. The greenback has been under considerable pressure in the run up to the Fed meeting on expectations that the US central bank will outline its second round of stimulus, a move that will weaken the dollar. The big question is how much stimulus. The dollar received some support from new orders and unexpectedly robust employment levels which offset the US Institute for Supply Management figures that showed weaker-than-expected personal income and spending data.

EUR

Recent euro strength seems to be abating as it fell off against the dollar after robust US manufacturing data and maintained recent levels against sterling. Some traders cited simmering concerns on Eurozone countries’ debt problems as weighing on the euro after the Irish bond yield jumped almost 30 basis points on Monday, bringing its spread over German bonds to a euro lifetime high. Government bond yields in Greece soared after comments by the country’s deputy prime minister about debt restructuring. “The demonization of debt restructuring is wrong,” Theodorus Panagalos was reported in an Athens newspaper as saying. He added: “Debts exist to be restructured. We may pursue it or it may be suggested to us.”

JPY

The yen fell sharply against the dollar, prompting speculation of Japanese intervention however the Japanese Finance Ministry declined to comment on the currency movement. The Bank of Japan will meet after the Fed on Thursday and Friday.

Rest of the world

The week got off to an explosive start as purchasing managers from China, the US and the UK reported surprisingly robust manufacturing activity in October. China’s manufacturing index indicated activity was picking up in the fourth quarter, after the slight slowdown shown by third-quarter gross domestic product data last month. This was helped by a strong rally in new orders. News of robust data in China is always a positive for the global economic recovery.

The Reserve Bank of Australia Rate Decision was announced at 03:30 at 4.75% (forecast at 4.50%, previous at 4.50%).

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Written by Tom Tong

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