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Growth News to Drive British Pound Sterling Higher

“April appears to be promising to be positively for the GBP. Although the prospects to a large extent will be influenced by events that occur outside of the UK however, a few conventional fundamental FX strategy indicators are now more optimistic. Rate spreads continue to change in the direction of GBP in a trade-weighted basis. This is due to the fact that Euro rates in the area are convergent with the rates that of UK. Rate spreads have historically maintained a strong and stable correlation to EUR/GBP in recent times, we are expecting the gap to shrink. At present, our short-term fair-value model suggests that a decline to towards 0.80 is a good idea.” The statement was made by RBS in the note on foreign exchange forecasts.

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The International Business Times reports that on Wednesday, the Markit/CIPS purchasing Managers Index (PMI) for the services sector climbed by 55.3 from 53 the month before. In the wake of this new growth figures, Sterling rose to a new high of two weeks against the euro, and reduced down losses against dollar.

In the last week UK Construction PMI for March increased to 56.7 contrary to expectations of dropping to 53.4. The data showed that construction activity in Britain are increasing in March. The Sterling-dollar pair reacted to the news, reaching levels of 1.6030 levels. Manufacturing PMI also hit the 10-month high on Monday.

The increase of the 3 PMI business surveys suggests that the economy expanded by as high as 0.5 percent during the first quarter of this year,” said Chris Williamson the Chief Economist for the compiler of surveys Markit.

According to mortgage lender Halifax the house prices rose in March by 2.2 percentage in the month of March boosting expectations for the UK housing market could be stabilising.

At present, the pound-dollar rate is about 1.5904 the level, and it reached a two-1/2 month high in the Euro on Wednesday. but, the US dollars are also showing indications of a positive month, so the expectation of gains from the British Pound Sterling are limited.

Some analysts are skeptical of growth in the pound in anticipation after this BoE decision. While signs of a slight economic recovery have slowed the need for further quantitative easing, which could reduce demand for a currency, policymakers should be cautious about stifling any potential growth by tightening their policy.

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