May 2, 2017 / 8:12 AM / 3 months ago

Sterling inches down ahead of manufacturing PMI

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* Graphic: sterling and gilt yields bit.ly/2dgAXn1

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

By Jemima Kelly

LONDON, May 2 (Reuters) - Sterling inched back below $1.29 on Tuesday, after a long weekend during which the rest of the European Union took a tough and united stance on Britain's exit from the bloc, as traders eyed manufacturing data due later in the morning.

The EU-27 endorsed stiff divorce terms for Britain on Saturday and warned Britons to have "no illusions" that a deal to retain access to European markets will be swift and easy, at a Brussels summit marked by unusual harmony among leaders.

But sterling, which since last June's vote to leave the EU has been highly sensitive to signs that the country is heading towards a "hard Brexit" in which it loses any kind of preferential access to the single market, showed few signs of increased nerves on Tuesday.

It inched down 0.1 percent to $1.2866, less than a cent away from a seven-month high of $1.2965 hit last week.

The currency shrugged off data on Friday showing the economy slowed to a one-year low in the first three months of 2017, as higher inflation - in large part caused by sterling weakness following last year's Brexit vote - hurt consumer-focused businesses.

A monthly purchasing managers' index (PMI) for the manufacturing sector is due at 0830 GMT, and is expected to show activity slowing a touch, though staying well above the 50 mark that separates growth from contraction.

"Coming on top of the slowdown in GDP for Q1, a decline in the manufacturing index could generate speculation that this softness in economic activity may have rolled over into Q2, and may thereby reverse some of the pound’s recent gains," said IronFX currency strategist Charalambos Pissouros.

"Having said that, we think that the currency’s near-term direction will be primarily decided by opinion polls and developments regarding the upcoming election, instead of economic data, at least until the political landscape clears out somewhat."

Against the euro, the pound fell 0.2 percent to 84.76 pence .

Reporting by Jemima Kelly; Editing by Andrew Heavens

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