Sterling dips on weaker than expected manufacturing survey

LONDON: Sterling was weaker on Tuesday, shedding nearly 0.4 percent against the euro, hurt by a slightly weaker-than-expected survey of the British manufacturing sector.

The PMI survey showed manufacturing growth above lacklustre rates seen earlier in the year as export orders overall picked up, but it slowed last month from the rapid pace recorded in October.

Sterling, up almost 0.4 percent at $1.5101 before the data, fell back to as low as $1.5070 in afternoon, flat on the day. . The pound was down 0.4 percent against the euro at 70.22 pence per euro, with the single currency helped by better than expected euro zone manufacturing data.

"UK manufacturing PMI slipped and the trade balance deficit has almost doubled in the last quarter, with the main culprit being the fact that exports are increasing at a far slower pace compared to imports," said Alex Lydall, a senior currency trader at Foenix Partners, a firm which offers hedging solutions to British mid-sized companies.

"Manufacturing is a key component of UK growth and thus any contraction is not welcomed by the monetary policy committee."

A number of major banks are calling for a substantial weakening of the pound over the next year, given risks to growth and investment from tighter fiscal policy and the prelude to a vote on whether Britain should leave the European Union.

Morgan Stanley's 2016 global outlook on Monday predicted sterling would fall to $1.40 in a year's time. Their analysts are also of the view that the Bank of England is wary of the pound's strength, especially against the euro, and which could have a dampening effect on UK exports and growth.

Investors are currently betting that the BoE will not start to raise rates until late 2016. That is in contrast to the European Central Bank which is likely to take rates deeper into negative territory and announce a bigger asset buying progamme this week.

Citi analysts said they expected sterling to strengthen against the euro before the meeting.

"That's the prevalent view in the market," said a dealer with one London-based brokerage. "But there are enough nerves out there to keep people wondering whether all of these short euro positions won't get a bit squeezed. That should keep things fairly balanced until Thursday."