Pound Sterling supported by better than expected data

The pound found support yesterday from data showing a pick-up in both the UK manufacturing and construction sectors.

The latest data from market research firm Markit showed that a pick-up in export orders which are now growing at their fastest level in 32 months helped UK manufacturing in October. Output and new orders continue to grow close to the recent 19-year high

Rob Dobson, Senior Economist at Markit said “Despite only accounting for less than 11% of the economy, the current strength of growth seen in manufacturing means the sector will still provide a major boost to the economy in October, boding well for the strong pace of economic growth we saw in the second and third quarter being sustained into the fourth quarter.”

Dr Howard Archer, Chief UK and European Economist at IHS Global Insight for his part commented that "Although global economic conditions are still challenging, the prospects for UK manufacturing export orders are being helped by the Euro zone now growing again, albeit modestly. And it is encouraging that the purchasing managers reported higher demand in October from Asia, the USA, mainland Europe, Ireland, the Middle-East and Russia. Admittedly, sterling hit a nine-month high on a trade-weighted basis earlier in October, but it is still at a pretty competitive level."

Markit have also reported that UK construction output grew at its fastest rate in October since 2007 with strong growth in all sub-sectors and robust increases in staffing levels.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI, highlighted the fact that all three sub-sectors (housing, commercial and civil engineering) saw strong rates of expansion during the month.

Meanwhile, the National Institute of Economic and Social Research (NIESR) forecast yesterday that the cost of borrowing in the UK will have to rise a year earlier than planned, dealing a blow to the Bank of England’s (BoE) key economic policy. In its latest health check of the UK economy, the NIESR said that UK interest rates would rise from their historic low of 0.5% in the second half of 2015, a full year earlier than predicted by the BoE.

Following the highly disappointing unemployment and inflation data out last week in the euro zone, the euro is under pressure as speculation mounts that the European Central bank, in its latest policy meeting this Thursday may cut its headline interest rate to stimulate the euro zone economy. In addition, Greece is due its next inspection by the troika (European Union; European Central Bank and the International Monetary Fund), On the eve of the arrival of the inspectors, Greek Prime Minister Antonis Samaras said that his country is not ‘at war’ with the troika as his country feel the pressure from the troika to accelerate its economic program in order to meet the terms of its bail-outs.

In the US, data out yesterday showed that its manufacturing sector performed well in October, coming in ahead of expectations

This followed the data out of China over the weekend which showed that China's service sector grew at its fastest rate in October in over a year boosting confidence that the Chinese economy is growing at a healthy rate.

This improved sentiment allowing a strong showing yesterday by the high-yielding currencies like the Australian dollar.