Pound leads the game after index of UK activity

By Le Figaro with AFP

Posted on 02/21/2023 at 21:29update on 02/21/2023 at 9:50 p.m.

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The pound was ahead of other major currencies on Tuesday. bukhta79/stock.adobe.com

The pound was ahead of the other major currencies, supported by growing economic activity in the UK in February and despite trends in the US market to flee from risk following a long bank holiday weekend. Around 7:00 p.m. GMT, the pound gained 0.89% to 87.95 pence for one euro, its highest level in three weeks and 0.51% once morest the American currency at 1.2103 dollars. “Sterling’s performance outperformed other currencies as manufacturing and services activity beat expectations”pointed out Joe Manimbo of Convera Financial Services.

“Inflationary pressures”

S&P Global’s Flash PMI for the UK economy, calculated on the basis of business surveys, stood at 53 in February, an eight-month high. A figure above 50 signals growth in activity, and therefore dispels concerns regarding a recession predicted by many observers in the United Kingdom. “These data suggest that the likelihood of a near-term recession is lower, but inflationary pressures remain worrisome”notes Chris Williamson, economist at S&P Global.

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If the British economy is robust enough and inflation persists, the Bank of England (BoE) might continue its rate hikes, which makes the pound more attractive. “It would be premature to think that the UK has avoided recession”, tempered Gabriella Dickens, analyst at Pantheon Macroeconomics, who recalls in particular that the PMI does not cover the activity of the public sector, affected by strikes in the United Kingdom. It therefore believes that the BoE will not touch its rate at its next meeting and will keep it at 4%. In a context of risk aversion on the American market, the dollar, if it lost momentum once morest the pound, on the other hand gained ground once morest the euro.

The greenback gained 0.37% once morest the euro at 1.0646 dollars while the Dollar Index, which compares the greenback to a basket of currencies, also advanced by 0.35% to 104.22 points. “The dollar continues to benefit from upbeat readings from the US economy which allowed the Fed to continue raising interest rates”, said Joe Manimbo. Investors are also awaiting the publication of the minutes of the US Federal Reserve meeting on Wednesday, which should give clues to the will of the various members of the central bank to continue their rate hikes. “The key question is how much of a possibility a 50 basis point rate hike was at its first meeting of 2023”when a 25-point hike was passed, said FXTM analyst Lukman Otunuga.

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