Sterling hit a 4-1/2 month high against the dollar on Monday, and scaled a 13-month peak versus a trade-weighted basket of currencies, after surprisingly upbeat manufacturing data suggested the UK could avoid slipping into recession. Analysts said sterling could sustain gains with the help of a bullish technical outlook, and if other PMI data due this week beats expectations.
But many investors would be wary of pushing the pound too high given speculation the Bank of England (BoE) may still opt for another round of quantitative easing to boost growth, an exercise that boosts supply of the currency. The pound climbed to a peak of $1.6063 against the dollar, its highest since mid-November, after PMI data showed UK manufacturing unexpectedly picked up in March, increasing at its fastest pace in 10 months and confounding analysts' forecasts for a slowdown.
Traders said Middle East investors bought sterling against the dollar earlier in the session, but there was selling interest from corporates ahead of $1.61. The pound was last flat on the day at $1.6008. Trade-weighted sterling rose to 82.0 according to BoE data, its highest level since February 2011. The euro fell to a session low of 82.98 pence against the pound, down around 0.4 percent on the day and coming under pressure from reported selling by a Spanish bank following weak euro zone manufacturing PMI data.
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