Sterling rises to 10 month high against dollar

Sterling rose sharply against the US Dollar today, as stronger equities and oil prices boosted market sentiment and enhanced investor appetite for riskier assets.

The pound rose to a 10-month high ($1.6851), lifted by better-than expected UK Manufacturing PMI data. It also fared well against the euro, hitting a one-month high against the single currency.

Optimism had been building in the markets following better-than-expected GDP data out in the U.S on Friday. Whilst investors were expecting a decline of 1.5%, official data revealed a 1% decline - the slowest rate of decline in four quarters. This suggested an improvement in the world's largest economy, prompting investors to head towards riskier assets.

David Clements, Senior Analyst at Caxton FX says "Whilst we're still a long way off the $2 to £1 heights of last year, the pound has rebounded significantly against the dollar. Since its 23-year low in January, when it hit $1.35, the pound has rebounded 25%. Over the medium-term we are forecasting for sterling to continue to gain against the greenback, particularly if banks and blue-chip stocks show renewed strength, as Barclays did today. Investors will now be focusing on Thursday's Bank of England interest rate decision, as well as Lloyds and Royal Bank of Scotland's corporate earnings figures also out this week".

The New Zealand and Australian dollar did well against the US dollar too, both hitting multi-month highs. Both have shown remarkable strength over the past three-months, feeding not only off improved risk appetite in the market but also rallying commodity prices. The prospect of an interest rate rise in the not too distant future has also attracted investors to the Australian currency.