Sterling stays weak despite better construction data

LONDON: Sterling stayed near an 18-month low on Tuesday, with a stronger-than-expected survey of Britain's construction sector doing little to change the expectation that interest rates will stay near zero until well into 2016.

The monthly construction purchasing managers' index (PMI) rose to 59.1 from December's 17-month low of 57.6, topping all forecasts in a Reuters poll and far above the 50 mark that signifies growth.

Optimism about the next year increased for the first time in three months, albeit only a little from December's 16-month low, and the numbers also followed a firmer-than-expected survey of the manufacturing sector on Monday.

But sterling only managed to slightly trim losses to trade at $1.5018, up from $1.4999 before the release but still down 0.1 percent on the day and close to an 18-month low of $1.4952.

"In order to make a case for rising or falling rate expectations from the current levels we need some serious big improvement in data or a big deterioration in data," said Manuel Oliveri, a currency strategist at Credit Agricole in London.

"Unless that happens, rate expectations will stay flat for now, and hence we won't get any big currency moves for sterling right now."

Oliveri added that investors did not focus too heavily on the construction sector, which only makes up around 6 percent of gross domestic product, and that tomorrow's PMI for the dominant services sector would be more important.

Sterling has fallen around 11 percent against the dollar in the past six months as investors have pushed back their expectations of when the Bank of England will start raising rates from their historic lows. It has also begun to be weighed down by political uncertainty before May's parliamentary election.

Against the euro, the pound cut losses to trade at 75.425 pence, flat on the day, from around 75.485 pence before the survey's release.

"There are still two important boons on offer to sterling bears," wrote BNY Mellon strategists in a research note. "The first is the UK's close association with its primary export market, the euro zone, which is embroiled in fresh crisis just as its economy last lost momentum. And the second is political uncertainty surrounding this year's general election."