Th CIPS/Markit Manufacturing Purchasing Managers' Index or PMI rose to 50.8 in July from an upwardly revised 47.4 in June. Economists had expected the index to rise to 47.7. This was the first time the index climbed above 50 since March 2008.
A reading above 50 indicates expansion in the sector, while a reading below 50 signals a contraction.
Manufacturing production rose for the second successive month and strongest since December 2007, while new orders rose for the first time since March 2008 at its fastest pace in twenty months.
Rob Dobson, Senior Economist at Markit said, The base of the recovery remains broad, which should help with sustaining gains into Q4.
That said, employment in the sector continued to drop, falling for the 15th month in a row. The rate of reduction continued to ease and was the least severe since June 2008, the report said.
The pound also jumped to new multi-week highs against the European currency, the Swiss franc and the Japanese yen.
U.K.'s small and medium-sized manufacturers said the rate of decline in orders and output is slowing, the latest quarterly SME Trends Survey results from the Confederation of British Industry showed today. At the same time, medium-sized companies forecast a return to growth in the next quarter.
A balance of minus 34% said the volume of total new orders declined in the three months to July. This was an improvement on the previous quarter's balance of minus 51%, which was the worst figure since the survey began in 1988. Further, a net 28% of manufacturers reported a drop in manufacturing output volume, marking a slower rate of fall than the previous quarter's survey low of minus 48%.
The British currency was also boosted by a rise in U.K. stock prices. Britain's leading share index advanced 1.3 percent in early trade today in a charge led by banks, following results from HSBC (HSBA.L) and Barclays (BARC.L), and supported by miners and oil stocks.
At 4:58 am ET, the FTSE 100 was 60.09 points higher at 4,668.45. The index closed down 23.25 points on Friday at 4,608.36, but still had its best weekly performance since April 2003, reaching a 7-month high on Thursday.
Banks provided the biggest boost early on as investors welcomed first-half numbers from HSBC and Barclays.
HSBC, Europe's biggest bank, posted an unexpected profit in the first half as earnings from its securities unit more than doubled. In the first six months of the year, the bank produced pre-tax profits of $5.02 billion, less than half the $10.2 billion it reported in the first half of 2008.
Barclays fell short of expectations with an 8 percent rise in half-year profit as bad debts at Britain's second biggest bank almost doubled to offset buoyant earnings from its enlarged investment bank. Profit came in at 3 billion pounds, up 8 percent from a year ago, but below the average forecast of 3.5 billion pounds.
Against the U.S. dollar, the British pound climbed to 1.6882 during early deals on Monday. This set the highest point for the pair since October 21, 2008. The next upside target level for the pound-dollar pair is seen around 1.766. The pair closed Friday's North American session at 1.6717.
The pound has appreciated around 5.3% after hitting a 1-month low of 1.5986 against the dollar on July 8.
The dollar fell broadly on Monday as stronger equities and oil prices continued to buoy sentiment, with perceived higher risk currencies such as sterling and the Australian dollar rising sharply.
These currencies hit multi-month highs as European shares rose 1.2 percent and oil prices were above $70 per barrel, keeping investor sentiment towards riskier assets buoyant.
Optimism has been building in the market following a better-than-expected U.S. gross domestic product reading on Friday, which lifted hopes that the global economy is over the worst of the downturn.
U.S. gross domestic product, a closely watched measure of broad economic performance, fell at a pace of 1% for the second quarter, marking the fourth consecutive quarter of contraction. But, the pace slowed considerably from the 6.4% decline that was seen in the first three months of the year.
This marks the fourth consecutive quarter of contraction, but the pace slowed considerably from the 6.4 percent decline that was seen in the first 3 months of the year.
The sterling rose to a 5-week high of 0.8465 against the European currency during Monday's early deals. The euro-pound pair is currently trading at 0.8480, with 0.840 seen as the next target level. The pair closed last week's trading at 0.8532.
The British pound that touched a 9-day low of 0.8694 against the European currency on July 27 strengthened thereafter and has gained around 3% thus far.
The euro bounced back into positive territory against other majors after some good news on the euro zone economy, with revised figures showing the region's purchasing managers' index for manufacturing rose to an 11-month high of 46.3 in July from 42.6 in June. The index also stood above the flash estimate of 46. This was the second strongest rise in points terms in the history of the survey. However, the index is still below the neutral level of 50, showing a contraction in the sector.
Earlier today, Germany's Federal Statistical Office announced today that the retail sales dropped 1.6% year-over-year in real terms in June, compared with a 3.7% fall in May, revised from 2.9% decline reported initially. Economists were looking for an increase of 0.9%. A year earlier, retail sales were down 4%.
Month-on-month, retail sales dropped a seasonal and calender adjusted 1.8% in June, after falling 1.3% in May, revised from 0.4% increase estimated initially. Economists had expected an increase of 0.3%.
The British pound advanced to a 5-week high of 1.8036 against the Swiss franc during today's early deals. If the pair gains further, 1.820 is seen as the next target level. The pair closed Friday's New York deals at 1.7854.
The pound-franc pair that traded near a 5-week low of 1.7398 on July 13 has gained around 4% since then.
Switzerland's Purchasing Managers' Index rose to 44.3 in July, which was the highest reading since October 2008, a survey from the SVME Association of Purchasing and Materials Management and Credit Suisse showed today. Economists were expecting the reading to climb to 43.6 in July from 41.8 logged in the prior month.
U.K.'s sterling rose to 159.99 against the Japanese yen at 4:40 am ET Monday. This set the highest point for the pair since July 1, 2009. On the upside, 160.4 is seen as the next target level for the U.K. currency. The pound-yen pair closed Friday's deals at 158.20.
The pound-yen pair that traded near an 8-week low of 146.81 on July 8 has appreciated around 8% since then.
Traders are now likely to focus on the North American session, in which the U.S. ISM manufacturing index for July and the construction spending report for June are expected.
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