Sterling back in fashion
It really was a stirling day for sterling yesterday with UK service sector data leading the way. This morning we have UK manufacturing data which is likely to show an improvement in the sector and potentially add some fuel to the GBP rally. Later this afternoon, we have the UK’s Q3 GDP estimate.
If all of todays data shows improvement, we really could see significant movement in GBP, particularly given the backdrop of potential rate cuts from the Eurozone tomorrow and so much heavyweight data from the US at the end of the week.
Why does positive data from the UK increase sterling’s strength?
In this particular scenario the mounting positive data is likely to cause the BoE to increase its GDP forecast for the coming year(s). Increased GDP will likely imply an improvement in employment and, as the BoE has targeted the employment/unemployment rate as a waypoint for potential interest rate rises, this increases GBP’s attractiveness to investors and hence its value improves.