Pound Gains Versus Euro as U.K. Manufacturing Beats Forecast

  • January manufacturing activity grew 0.7% versus estimated 0.2%
  • Gilt yields rise after biggest drop since Feb.11 on Tuesday

The pound advanced against the euro after manufacturing activity in the U.K. expanded at a faster rate than expected in January and a rally in commodities and stocks boosted investor sentiment.

Manufacturing production grew 0.7 percent against the 0.2 percent forecast in a survey of Bloomberg economists. Industrial production expanded by 0.3 percent, lower than forecast 0.4 percent but beating the 1.1 percent contraction in December.

“Solid manufacturing growth in January helped the pound by boosting optimism today, along with firmer oil and commodity prices," said Ipek Ozkardeskaya, an analyst at London Capital Group.

The pound appreciated 0.4 percent to 77.19 pence per euro as of 2:54 p.m. London time, after its biggest decline since Feb. 24 on Tuesday. Sterling fell 0.2 percent to $1.4191, adding to Tuesday’s drop that ended a six-day run of gains, its longest since the period ended June 19.

The U.K. currency has weakened since the start of the year as uneven economic growth and investor concerns continue at the fore over “Brexit,” or a potential exit by Britain from the European Union, further pushing back market expectations of the next rate hike by the Bank of England.

Governor Mark Carney warned that the U.K. leaving the European Union was ‘‘the biggest domestic risk to financial stability’’ and had some potential to amplify pre-existing risks to financial stability, in his testimony to lawmakers on Tuesday.

The benchmark 10-year gilt yield rose eight basis points, or 0.08 percentage point, to 1.46 percent, after seeing its biggest drop since Feb. 11 on Tuesday. The 2 percent security due in September 2025 fell 0.68, or 6.80 pounds per 1,000-pound face amount, to 104.775.

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