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Sterling has jumped to a four- and-a-half month high against the euro amid stronger manufacturing data out of the UK.

It comes ahead of a much anticipated Bank of England meeting today in which governor Mark Carney is expected to announce the bank’s first interest rate rise in a decade.
The pound hovered above the 87p to the €1 mark – a level not seen since June – as data showed British manufacturers reported robust growth for October, reinforcing speculation of a rate hike.

Sterling has also gained some ground thanks to more positive soundings over the Brexit talks.
Although the market is almost completely priced in for a rate rise decision from the BoE this week, investors are watching closely for any signs that it could spell the start of a longer-term tightening cycle.

The manufacturing purchasing managers’ index (PMI) from IHS Markit/CIPS rose to 56.3 in October, from an upwardly revised 56.0 in September.
“The three-month average was the highest of the year so far… so the pound rallied,” said Stephen Gallo, European head of foreign exchange strategy at BMO Capital Markets.

The pound also climbed against the dollar, hitting a two-week high of $1.3321, up from $1.3283 before the data.
Board meeting minutes released from the Central Bank yesterday for September highlighted the “relatively sizable fluctuations in the euro/sterling exchange rate”.

“The impact of the weaker sterling had been mainly reflected in Ireland through weaker consumer price inflation, which would have impacted favourably on real disposable incomes and personal consumption,” the report of the meeting stated.

Data for the Irish manufacturing sector showed a weakening in the level of growth, which slowed to the weakest pace in seven months. The rate of job creation picked up, however, and inflation eased slightly.

The seasonally adjusted Investec Purchasing Managers’ Index dipped to 54.4 in October from 55.4 in September.
New orders continued to increase at a sharp pace in October, despite the rate of growth easing from that seen in September. Some panellists mentioned strength in export markets. In fact, new export business rose at the fastest pace in four months.

“The report shows that, despite a recent slowdown, the rate of growth in new orders remains sharp, helped by overseas demand – the new export orders index accelerated to a four month high, with many panellists reporting stronger demand from European and Asian markets,” said Investec economist Philip O’Sullivan.
“In response to this healthy demand, Irish manufacturers continue to add to their headcounts, with the employment index expanding at its fastest rate since June.”

Meanwhile, the Commission minutes also separately noted that the Central Bank believed that while the banking sector here was prepared for Brexit, there were concerns over the readiness of the insurance industry: “Mr [Ed] Sibley [deputy governor] agreed that the level of preparedness within the insurance sector was not where it should be.”

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