Sterling jumps as economy picks up pace

Sterling made broad gains across the board Wednesday morning following the release of much better than expected service sector data for June, spurring hopes that the economy may finally be starting to recover. The Purchasing Managers' Index for services leapt to 56.9 from 54.9, more than two points above the consensus forecasts and the fastest rate in more than two years. The pound gained by more than half a per cent against the Euro, and ¾ of one per cent against the dollar where it was trading at a 1-month low.
 
Today's data continues a recent run of better than expected indexes on different areas of the economy including manufacturing and construction which all point to increasing levels of activity, new orders and hiring. Expectations for growth during the past three months have increased to around 0.5% and forecasts for the full year are being revised higher too, something we haven't seen for a few years. The recent pick up in house prices and increase in mortgage approvals should also support consumer confidence/spending. This should pretty much eliminate whatever small chance remained of any change in monetary policy at the new Governor's first meeting tomorrow and is likely to at least put on hold any further decisions on additional monetary stimulus.
 
Unlike many of the major banks, we remain sceptical about the prospects of there being a huge increase in quantitative easing by the Bank of England, or there being a targeted depreciation of sterling due to concerns expressed by some of the MPC members at recent meetings. The pick up in activity will need to be sustained of course but providing it is, anyone holding currencies waiting for a crash in Sterling to buy it back cheaper, could be hugely disappointed.

Comment by Andy Scott, premier account manager at foreign currency exchange brokers HiFX.

For more information, visit hifx.co.uk.