RTRS:Sterling hits near two-week high vs dollar on PMI
(Reuters) - Sterling rose to its highest in nearly two weeks against the dollar on Monday after stronger-than-forecast manufacturing PMI data prompted market players to take a slightly brighter view of the UK economy.
A manufacturing PMI survey came in at 49.5 in August, outstripping forecasts of 46.0, although it remained below the 50 level that divides contraction from expansion.
Signs that the sector's downturn eased significantly raised chances the UK economy is emerging from recession, although strategists said PMI data from the dominant services sector later in the week would give a better indication of growth.
Sterling jumped to $1.5906, before stalling near strong technical resistance at $1.5912, the August 23 high.
"This suggests maybe the UK is breaking away a bit from Germany and the rest of the euro zone whose PMI numbers were very weak, and sterling has really reflected that," said Kathleen Brooks, research director at Forex.com.
"If the services PMI gets above 53.3, the high from May, it could send us flying above $1.5912 and open the door to $1.60."
Services make up the bulk of UK gross domestic product and the PMI survey for the sector, released on Wednesday, is forecast to show a rise to 51.1.
Sterling has also been supported against the dollar by bets the U.S. Federal Reserve will opt for another round of monetary easing to boost the economy.
The pound rallied in line with other perceived riskier currencies on Friday when a speech by Fed chairman Ben Bernanke prompted market players to sell the dollar on the understanding further U.S. monetary stimulus could be announced very soon.
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The euro fell 0.2 percent to 79.09 pence, breaking just below near-term support from the 233-hour moving average around 79.12 pence.
Euro zone manufacturing PMI data painted a gloomier picture than the UK survey, but strategists said sterling would struggle to rally much further against the euro in the run up to a European Central Bank policy meeting on Thursday.
ECB President Mario Draghi is widely expected to announce plans to tackle the euro zone debt crisis and curb Spanish and Italian borrowing costs, a move that could push the euro higher across the board.
The Bank of England also meets on Thursday, although policymakers are expected to keep interest rates and the quantitative easing total unchanged.
"When the euro is in the ascendancy it seems to rise faster than sterling (against the dollar). It's quite critical later in the week whether Draghi unveils a bond purchase programme," said Michael Derks, chief strategist at FxPro.
