LONDON: Sterling hit a five-year high on a trade-weighted basket of currencies on Monday, as stronger-than-forecast manufacturing data underpinned expectations UK interest rates will rise soon.
The sterling trade-weighted index rose 0.5 percent to 85.1 , its highest since November 2008, according to Reuters data.
Against the euro, the pound hit an 11-month high of 82.57 pence per euro, up 0.6 percent on the day. And against the dollar the pound was up 0.2 percent at $1.6409, after reaching $1.6443 in Asian trading.
Trading volumes of euro/sterling were nearly double the average over the past month. Volumes against the dollar were also up strongly.
The pound has been gaining since summer as signs of a resurgent UK economy heightened expectations the Bank of England will raise interest rates earlier than had been expected.
And on Monday the Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) jumped to 58.4 in November from an upwardly revised 56.5 in October. Forecasts were for a reading of 56. Index readings above 50 indicate expansion.
"The pound is looking very strong right now," said Nawaz Ali, UK market analyst at Western Union. "The picture makes sense when you consider relative monetary policy at the major central banks.
"If you get more dovish policy signals from the ECB and (U.S.) payrolls on Friday suggesting U.S. quantitative easing stays at full pace for longer, then cable could move through $1.65 towards $1.66."
Cable is the exchange rate between sterling and the dollar.
Euro zone data, meanwhile, have suggested looser monetary policy. European shares fell on Monday after Spain's manufacturing sector contracted in November for the first time since July.
Lee McDarby, executive director, corporate FX sales at Nomura International, said further strong PMI numbers should help support the pound above $1.60 and 1.20 euros.
"Since September, resistance around $1.6250 had held any surge in the pound back, but now that level has been blown away and should help to support sterling/dollar on the downside," he said. "Traders are now looking to $1.6475 as the new level of resistance and a break of that rate early in the week could open up a big drive higher in the short to medium term."
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