ET:Sterling hits 9-month high vs dollar, trade-weighted basket
LONDON: Sterling hit a nine-month high against a broadly weaker dollar on Tuesday after the US Congress failed to break a stalemate over the budget and the government began a partial shutdown.
It also hit a nine-month peak against a trade-weighted basket of currencies and its highest since mid-January versus the euro.
The pound pared gains briefly as the UK Purchasing Managers' Index for manufacturing slipped to 56.7 in September from August's two-and-a-half year high of 57.1, below the Reuters consensus forecast of 57.3.
However, it quickly recovered as analysts said the data still pointed to a strengthening UK economic recovery. Details of the survey showed employment and prices rose at their fastest pace in two years.
Sterling was last up 0.3 per cent on the day at $1.6234 , having earlier hit $1.6260, its strongest since early January, leaving it with the potential to target the Jan. 2 peak of $1.6380.
"UK data took the gloss off sterling, albeit temporarily. Sterling still looks bid and the employment part of the PMI data supports the market's bullishness," said Richard Wiltshire, chief FX broker at ETX Capital.
"It's all about the US government meltdown and I would expect sterling to be a beneficiary in the near term," he said, adding he would expect strong demand to buy the currency on any fall towards $1.6150.
The euro hit an 8-1/2 month low of 83.325 pence, while sterling's trade-weighted index rose to 83.8, its highest since Jan. 3.
But the pound struggled to make a sustained break beyond chart resistance at 83.33 pence per euro. This is equivalent to 1.20 euros per pound, a level at which UK importers often look to buy the single currency for hedging purposes.
The euro was helped by the prospect of Italian Prime Minister Enrico Letta's coalition government surviving a confidence vote on Wednesday.
Analysts also warned that sterling was at fairly elevated levels above $1.60 and may be vulnerable if UK data disappoints.
"As a conduit against broader dollar uncertainties, sterling is doing reasonably well and is getting back to a scenario where the highs of the year are in sight," said Jeremy Stretch, head of currency strategy at CIBC.
"For it to get there we need further negativity from the US and a perpetuation of strong UK data."
Continuing a recent run of solid UK data, a survey on Tuesday showed the number of advertised jobs in Britain rose to its highest in four years last month.
