Sterling hit its highest level in 11 weeks against the dollar on Tuesday after strong UK manufacturing data boosted speculation the Bank of England may need to raise interest rates in the near future. Data showed a manufacturing purchasing managers' index (PMI) climbed to 62.0 in January from an upwardly revised 58.7 in December. That was the highest reading since the survey began in 1992 and well above the consensus forecast of 57.9.
Sterling rose to $1.6143, its highest since November 15, before easing back to $1.6118 in afternoon trade, up around 0.7 percent on the day. The dollar was under broad pressure, at one stage sliding to a 12-week low versus a currency basket as US interest rate expectations continued to lag those of the euro zone and the UK. Technical analysts were becoming increasingly bullish for the pound, with next key resistance highlighted as the October 2010 high at $1.6300, followed by $1.6379, the 76.4 percent retracement of the pound's 2009 to 2010 sell-off.
The euro fell to a session low of 85.10 pence before recovering to 85.37 in afternoon trade. Implied interest rate futures based on overnight index swaps were pricing in around a 70 percent chance of a 25 basis point rate rise in May, up from around 54 percent before the PMI data was released and around 40 percent from late last week.
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