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The pound jumped against the dollar on Wednesday, putting it on course for its strongest day since May, as stronger economic activity triggered an unwinding of negative bets against the currency.
Signs of strength in the UK economy, combined with a weaker dollar, pushed sterling up 1 per cent to $1.334, its highest level for more than a month.
A closely watched survey showed on Wednesday that UK business activity expanded at a stronger pace than expected, painting a rosier picture of the country’s economy.
The S&P Global UK Composite purchasing managers’ index for November came in at 51.2, compared with analysts’ expectations of 50.5. A reading above 50 indicates expansion in activity since the previous month.
With investors’ concerns ahead of last week’s Budget now eased, and with economic data suggesting a steadying of growth, there was “simply no need for markets to tread with caution, at least in the near term, with regards to GBP,” said Kamal Sharma, a G10 currency strategist at Bank of America.
Derek Halpenny, head of research in global markets for Europe, the Middle East and Africa at MUFG, attributed the move to the strong PMI data, adding that it was being boosted by an unwinding of traders’ bets against the pound in the run-up to the Budget.
“Those positions are now being squeezed from the market,” he said.
The exchange rate was also buoyed by a weaker dollar on Wednesday, after data showed that private employers in the US shed 32,000 jobs in November, painting a much weaker picture of the health of the economy than analysts had expected.
The payrolls data, combined with President Donald Trump’s strong hints on Tuesday that Kevin Hassett, director of the National Economic Council, will be named as next chair of the Federal Reserve, weighed on the dollar as investors bet on faster interest rate cuts by the US central bank.
The dollar weakened 0.4 per cent against a basket of other big currencies.
