LONDON: Sterling hit its highest since the peak of the 2008 financial crisis on Tuesday after a survey showed British manufacturing expanding at its fastest rate in seven months, adding to the case for a rise in interest rates this year.
The PMI index of sentiment among manufacturing purchasing managers rose to 57.5 in June from 57.0 in May - its highest since November and well above the 50 line that divides growth from contraction. Economists in a Reuters poll had expected the index to fall to 56.8.
The survey adds to evidence that Britain's consumer-led recovery is becoming more balanced and sustainable. The numbers are likely to reassure policymakers who have wanted to see a more broad-based recovery based on greater exports, manufacturing and business investment.
Sterling rose to $1.7145 after the data was released from around $1.7102 beforehand, leaving it up around a quarter of a percent on the day. The euro also fell by around a quarter of a percent to a session low of 79.81 pence from around 80.05 pence before the data.
Some traders said expectations for robust growth and an ensuing hike in interest rates from the Bank of England for the first time in seven years now looked well priced into sterling. The last month has shown, however, that the currency will still move on changes in expectations on how early that first hike might come.
"We're already looking at a decent consensus 3 percent growth for this year," said Simon Smith, head of research at online broker FxPro.
"Stronger PMIs will solidify that perception but I don't think they're necessarily going to cause sterling to run away unless we have anything from the central bank that's going to cause markets to believe that things are shifting on that front."
Bank of England policymakers have massaged expectations on the timing of their first move in a series of comments over the past month. The market is divided over whether they could move as early as November this year or wait until well into 2015.
Either way, the bank is firmly expected to be the first of the world's major central banks to tighten monetary policy and that has driven a roughly 10 percent gain in the past year.
Against a basket of major currencies, sterling equalled a five-1/2 year high on Tuesday that it had also hit in June . It completed its fourth successive quarter of gains against the dollar in the previous session.
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