Sterling rose versus the dollar on Tuesday as better than expected global economic data supported riskier currencies. Figures also showed British manufacturing appeared to be stabilising as orders from Germany and China picked up, with the purchasing managers' index rising to 49.6 last month from 47.7 in November, beating expectations for 47.4.
However, analysts said the survey would not alter the view that the UK is likely to slip into another recession. Over the fourth quarter as a whole it showed manufacturing recorded its worst performance since the second quarter of 2009. Sterling was up 0.9 percent versus the dollar at $1.5653, with traders citing demand at the 1600 GMT fix when the Bank of England sets a reference rate. It extended gains after reported stop-loss orders were triggered on the break above $1.5600.
The pound's gains mainly tracked a broad rise in riskier currencies and assets after better Chinese manufacturing and services data and a sharper-than-expected drop in German unemployment. Sterling underperformed the euro, which rose 0.1 percent to 83.43 pence. However, the euro was still close to its recent low of 83.02 pence, its weakest since early January 2011. Below there, it would target the January 2011 low of 82.85. The pound gained around 2.5 percent versus the euro over 2011 as investors shifted from the single currency as the eurozone debt crisis intensified.
Many analysts expect the pound to gain further versus the euro in coming months, although the euro could recover a little as investors take profit on short positions they have built up in the single currency. Data last week from the Commodity Futures Trading Commission showed currency speculators boosted bets against the euro to a record high in the week to December 27.