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Pound Surges Higher As UK Construction Returns to Growth

Pound Surges Higher As UK Construction Returns to Growth

2011-02-02 10:14:00
Jonathan Granby,
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A report this morning by the Chartered Institute of Purchasing and Supply (CIPS) along with Markit Economics showed that UK construction expanded in January as the weather improved. The gauge of building activity rose to 53.7 from 49.1 in December, a measure below 50 indicates contraction, and beating forecasts of 49.5. The reading was the highest since September 2010 and confirms the 10th out of the last 11 as expansionary. Markit/CIPS commented that it was not only an improvement in the weather conditions that allowed the gauge to climb but also gains in new business.

UK_construction_PMI_body_gbp.png, Pound Surges Higher As UK Construction Returns to Growth

The pound extended its gains against the dollar on the back of the release advancing as much as 0.4%. The pound has now put some distance between itself and the psychologically important 1.6000 level ahead of the PMI services release tomorrow. Services PMI is far more important a gauge for growth prospects and policy implications than today’s PMI construction or yesterday’s PMI manufacturing which combined account for 25% of UK economy, while services accounts for the other 75%. The services reading tomorrow is forecast to come in at 51.3, after slipping into contraction territory in December too. An as expected or stronger than expected reading will likely push the pound higher, with bulls probably already eying November 2010 peaks around 1.6300.

Written by Jonathan Granby, DailyFX Research Team

IF you wish to contact the author with comments or questions email instructor@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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