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Sterling gains due to better than expected PMI data

• Posted by Shyam Gokani in Uncategorised
• January 4, 2017
• No Comments

Sterling inched higher against a broadly weaker dollar today after hitting a two-month low on a volatile first day of 2017 trading in London when Britain’s chief EU negotiator quit.

Data on the economy continues stronger than many economists had expected after last June’s vote to leave the European Union, with a survey on Tuesday showing manufacturing growth at a two-and-a-half-year high last month.

Politics are widely expected to weigh on the pound at least until the promised formal start of talks on leaving the 27-country bloc in March.

Analysts said the early departure of Britain’s outgoing ambassador and a leaked resignation letter that called on colleagues to challenge “muddled thinking” added to uncertainty.

The monthly purchasing managers’ index (PMI) for the manufacturing sector rose to 56.1, the strongest since June 2014. That exceeded all forecasts in a Reuters poll, which pointed to a decline to 53.1, adding to signs that the economy ended 2016 strongly.

Construction PMI numbers this morning came in above expectations as well as Bank of England net consumer credit data.

A new burst of inflation is set to hit the British high street, as prices edged up in December and analysts predicted that the shop price deflation seen over the past three years is coming to an end.

Whilst the supermarket price war helped food prices to fall in the run up to Christmas, we are now seeing the first impact of the currency depreciation of the last six months, with increases in retail prices for some non-foods such as clothing.