Sterling holds steady but vulnerable to manufacturing PMI

LONDON: Sterling held firm against the dollar and euro on Tuesday as weak US data hurt the greenback while worries about Italy and Cyprus kept the euro on the back foot.

However, the pound could slip on sub-par manufacturing data. Britain's Purchasing Managers' Index (PMI) due at 0828 GMT, is expected to show the manufacturing sector contracted further in March, though at a slightly slower pace than previously recorded.

Analysts said that as markets had already priced in a bad factory PMI reading, data would have to come in significantly worse than expected to push sterling much lower.

"The PMI numbers are important. Expectations are poor, however, so it would have to be a disastrous print to move sterling considerably," said Peter Kinsella, currency strategist at Commerzbank.

The pound was flat at $1.5230. Strategists said sterling could find some support around $1.5150, where buyers might emerge, but would find it difficult to rise above $1.5250 as markets remain keen to sell the currency on any rebounds.

Economists expect the PMI to rise to 48.5 in March from 47.9 in February but stay below the 50 mark that divides growth from contraction.

"Today's UK PMI is the main data highlight for sterling. The weaker euro area manufacturing PMIs signal continued weakness in the UK manufacturing PMI," analysts at RBC said in a note.

Consumer credit and mortgage data for February at 0830 GMT could also provide clues to the UK economy's performance over the first quarter and whether or not the country has slipped back into recession.

Sterling found some support after weak US factory activity data hurt the dollar.

The pound could see further gains against the euro if the European Central Bank, which meets on Thursday, hints at easier policy. In contrast, the Bank of England, which concludes its policy meeting on the same day, is expected to keep its bond buying target unchanged.

The euro was flat against sterling at 84.35 pence, some way off 84.115 pence hit on April 1, which was its lowest since Jan. 24 and could act as near-term chart support, strategists said.