LONDON: Sterling fell against the dollar and the euro on Wednesday, after data showed British manufacturing growth unexpectedly slowed to its weakest rate in more than two years in June.
The Markit/CIPS manufacturing purchasing managers' index (PMI) fell to 51.4, below a Reuters poll that had predicted a slight improvement to 52.5 though still above the 50 mark that separates growth from contraction.
Sterling dropped to $1.5640, down 0.5 percent on the day, from around $1.5710 beforehand. It was last trading at $1.5660, still down 0.35 percent on the day.
The euro inched up to 71.30 pence, having traded at 70.68 pence before the data, and firmer on the day. The single currency was also helped by news that Greek Prime Minister Alexis Tsipras sent a letter to Greece's lenders accepting a deal that creditors have offered with some changes.
"This (manufacturing) report is not good for the pound," said Nawaz Ali, market strategist at Western Union. "The strong currency has been a drag on exports and the manufacturing sector and echoes some of the concerns that we have had from the Bank of England recently." On Monday the BoE's chief economist, Andy Haldane, said a strong pound was likely to weigh on growth over the next two years. Sterling gained around 2 percent in June on a trade-weighted basis to hit a seven-year high, bolstered by expectations that the BoE may start raising rates towards the end of this year.
The shift in market expectations to the last quarter of this year from the second quarter of 2016 happened in the middle of June after data showed British wages grew at their fastest rate in nearly four years in April amid signs that the labour market was continuing to pick up.
BoE Governor Mark Carney, while presenting the bank's semi-annual Financial Stability Report on Wednesday, saw the prospects for relatively low interest rates lasting for some time.
He said the BoE stood ready to take any action required in response to Greece's worsening debt crisis, which could trigger wider problems on financial markets.
"It is clear from today's PMI that the situation in the euro zone is proving increasingly difficult for UK manufacturers.
A weak euro and a possible Greek exit is making for difficult export conditions in the region," Mark Stephenson, UK manufacturing industry leader at Deloitte, wrote in a note.
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