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Sterling gains as manufacturing activity grows

Published:  05 January, 2011

Sterling gained yesterday as manufacturing data showed that activity in the sector grew in December at the fastest rate in 16 years.

Currency Rates
EURO/GBP - 1.1770
US$/GBP - 1.5609
CHF/GBP - 1.4857
CAN$/GBP - 1.5602
AUS$/GBP - 1.5568
ZAR/GBP - 10.476
JPY/GBP - 127.95
HKD/GBP - 12.125
NZD/GBP - 2.037
SEK/GBP - 10.504
US$/EURO - 1.3254
HUF/GBP - 324.84

The Purchasing Manager's Index (a survey in which purchasing managers are asked about their company's buying) shot to 58.3 - the highest since September 1994 and beating expectations of a figure of 57. This shows the necessary shift is taking place in that the UK economy is moving from an economy driven by consumer debt and credit to an economy that actually produces tangible products, and as such it was a positive day for sterling. The pound was up by around 1% against the US dollar and euro, hitting a high of $1.5643/£1 and breaking back over the €1.17/£1 mark after hitting seven week lows against the euro last week. Out today, there is construction activity data which could provide a boost if it beats expectations.

In the Eurozone, the euro fell from three-week highs against the US dollar yesterday after stronger than expected US manufacturing figures gave traders no reason to hold the single currency. In addition, many investors are concerned over bond issuance in the region as January is notoriously a time when many countries push through a large percentage of their debt funding requirements for the year to 'front load' their borrowing. Given the current climate, countries such as Portugal and Spain will have to pay more and more for their debt potentially pushing them towards a similar funding to Ireland and Greece.

In the USA, data showed that new orders received by factories rose to the highest level in eight months in November that fuelled risk appetite and saw the US dollar surge against the euro. A 3% drop in crude oil prices saw the US dollar outperform commodity linked currencies. Out today, there is non-manufacturing PMI data and employment figures so there could be some interesting movement.

Elsewhere, the Australian dollar fell following the widespread flooding in a key industrial region. There were concerns that the flooding would impact industry and severely impact the economic growth.

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