Pound Advances Against Euro as U.K. Construction Output Rises

Updated on
  • Sterling gains first time in three days versus shared currency
  • Focus turns to U.K. services PMI, ECB meeting, U.S. payrolls

The pound strengthened for the first time in three days versus the euro as a report showed U.K. construction output rose in August.

The Markit Economics Purchasing Managers’ Index for construction increased to 57.3 last month, from 57.1 in July. The median forecast of economists in a Bloomberg survey was 57.5. A reading above 50 reflects expansion. A report due Thursday will show U.K. services output expanded in August, according to a separate Bloomberg survey. Sterling touched its lowest level in almost three months against the dollar.

Market focus will shift to the European Central Bank President Mario Draghi’s press conference Thursday and the U.S. Labor Department’s August jobs report due Friday, according to Eimear Daly, a currency strategist at Standard Chartered Plc in London.

“Markets are probably knuckling down and waiting for the big events this week,” she said. These are “obviously going to be the ECB on Thursday and non-farm payrolls.”

The pound gained 0.7 percent to 73.45 pence per euro as of 4:14 p.m. London time, having weakened 1.7 percent over the previous two days. Sterling was little changed at $1.5296 after sliding earlier to $1.5265, the lowest since June 9.

The U.S. jobs report is the last major data point before the Federal Open Market Committee meets on Sept. 16-17, making it the focus for markets seeking clues on when the central bank will tighten policy.

Sterling Struggle

Britain’s manufacturing data released Tuesday showed the sector expanded slower than analysts predicted and this weighed on the pound. It could weaken further against the dollar if economic data from the U.S. outshine those in Britain, according to Stuart Bennett, London-based head of Group-of-10 currency strategy at Banco Santander SA.

“The services PMIs are going to be more relevant than the construction data,” he said. “If we get a deadly cocktail of weak U.K. services PMI and a strong payroll number from America then you are looking at going back to $1.50.”

U.K. government bonds were little changed after the Debt Management Office auctioned 3.75 billion pounds of securities due in January 2021.

Benchmark 10-year gilt yields rose less than one basis point, or 0.01 percentage point, to 1.94 percent. The price of the 2 percent bond maturing in September 2025 was 100.555 percent of face value.

The DMO sold the five-year gilts at an average yield of 1.462 percent, compared with 1.609 percent at a previous auction on July 2.

— With assistance by Aidan Gregory

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