British Pound Sterling | Currency News Views and Outlook

Pound to euro retakes 1.2 level as latest UK Manufacturing PMI hits 8 month high; is more QE inevitable?

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Category: British Pound Sterling

Published on Wednesday, 01 February 2012 10:48

Written by Will Peters

The pound sterling will find further strength as investors see that large increases to quantitative easing at the Bank of England is not a given.

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The pound to euro exchange rate is 0.36% lower at 1.2003.

The pound to dollar exchange rate is 0.04% lower at 1.5753.

The pound euro rate is holding onto its gains it made yesterday with the UK’s Manufacturing PMI figures beating expectations.

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UK PMI Manufacturing increased to 52.1 points in January, following 49.7 points in December, according to data released today by Markit. Analysts expected the indicator to continue contracting at 49.8 points.

This surprising rebound in January means a return to recession is by no means a certainty.

The good data is important for the outlook of the British Pound, as Richard Driver at Caxton FX explains:

"Positive readings from each of the PMIs released this week should go some way to discouraging the MPC to introduce another bout of quantitative easing – this would be positive for the Pound, considering it has been largely priced in already."

The euro should remain under selling pressure today with Portugal again in the spotlight when it sells 105-day and 168-day bills.

Greek talks will again affect this pairing, with investors reluctant to buy the euro on anything less than conclusive action.

Sterling hit a 2.5 month high against its US counterpart yesterday amid month end dollar selling.

Month-end rebalancing requirements, and slightly improved risk appetitive after positive Chinese Manufacturing data have helped this pair to a 2 ½ month high, with Sterling holding onto its gains this morning.

"Weak Consumer confidence from the States also put some pressure on the Greenback, with Manufacturing PMI readings from both the UK and the U.S likely to affect this pairing today. Sterling will struggle to hold onto these gains if further negative sentiment is produced from the euro-zone, with investors still favouring the safe-haven dollar," says Driver.