The pound rose 0.3 percent on Monday, still boosted by last week's general election victory for Boris Johnson's pro-Brexit Conservative party, even in the face of weak PMI data.
The prime minister's win saw the pound rally because the market perceives his party as the most able to end the Brexit uncertainty which has harmed the UK economy. But UK PMI data for the services and manufacturing sectors show that in November British businesses endured their worst downturn since mid-2016.
The pound was little affected by the data. Having risen as much as 0.7 percent in early London trading, it was last up 0.3 percent at $1.3370. Against the euro, it was broadly flat at 83.335 pence.
Over the weekend, Conservative politicians repeated their pledge to bring the UK out of the European Union by January 31 and reach a new trade deal with the EU by the end of 2020. Johnson intends to re-submit the Withdrawal Agreement Bill to parliament on Friday for ratification before Christmas.
"Generally, market participants are still relatively optimistic over the outlook for the pound following the strong Tory majority - that's still encouraging demand for the pound even at these higher levels," said MUFG currency analyst Lee Hardman.
Hardman said that when negotiations are underway after the Jan. 31 deadline investors' focus will shift back to UK fundamentals.
"If the data continues to disappoint then the risks will increase further that the Bank of England may have to cut rates early next year," Hardman said, describing the current level of growth as "uncomfortably weak" for the central bank.
The Bank of England meets on Thursday. It is due to publish its financial stability report and systemic risk survey results at 17.00 GMT on Monday.
"The likeliness of a hawkish tilt in the message appears quite small, so the upside potential for sterling seems broadly limited in the coming days unless we start to see some details on the WA (Withdrawal Agreement)," analysts at ING wrote in a note to clients.
According to weekly futures data, speculators reduced their net short position to $1.861 billion in the week to Dec. 10, the lowest level of shorts since May.
London's blue-chip share index, the FTSE 100, was up for the fourth session in a row on Monday. The index usually moves in the opposite direction to sterling, because its constituent companies are export-focussed, so the synchrony indicates that the potential for Brexit clarity is benefiting both domestic and internationally focussed companies.
Copyright © 2022 Khaleej Times. All Rights Reserved.