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Sterling falls before PMI data, looks vulnerable

Sterling falls before PMI data, looks vulnerable

Sterling fell against the euro on Friday and looked vulnerable to further losses ahead of a manufacturing survey that will give more clues on the extent of the British economy’s struggles. The threat of another recession in the UK has fuelled speculation the Bank of England may opt for more policy easing, while an easing of market tensions surrounding the euro zone has hurt sterling’s status as a safe-haven alternative to the euro.

On the other hand, Euro zone factories had their best month in nearly a year during January as burgeoning German output offered support amid signs the worst may be over for the troubled currency bloc, a survey showed on Friday. While Markit’s Purchasing Managers’ Index (PMI) pointed to a continued decline in activity, it rose to an 11-month high, suggesting the downturn in manufacturing output – which fell for most of last year – has passed it’s lowest point.

Meanwhile, U.S. job growth likely picked up modestly in January and the unemployment rate held steady, supporting views the economy’s sluggish recovery was on track despite a surprise contraction in the final three months of 2012. The closely watched report comes on the heels of data on Wednesday showing a surprise contraction in gross domestic product in the fourth quarter, but the jobs data should soothe any worries the economy was at risk of recession.

On the FX Markets, the sterling is trading back to the negative territory on Friday, after the final manufacturing PMI during January came in below estimates at 50.8 vs. 51.0 and previous at 51.2 After the poor UK GDP figures, the GBP continues to face pressure as inflows into the EUR have accelerated lately. At the moment, the cross is posting fresh session lows at 1.5834 or -0.14%, with the next support lying at 1.5809 (ma10D) followed by 1.5726 (low Jan.30). On the upside, a breakout of 1.5892 (high Jan.23) would open the door to the 200-day moving average at 1.5894.

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