RTTNews - In European deals on Wednesday, the pound surged up against its major counterparts as traders took a more optimistic view of the U.K. economy following various encouraging economic reports.
The pound rose to new multi-month highs against the dollar and the yen and new multi-week highs against the franc and the euro.
U.K.'s manufacturing output unexpectedly jumped in June by the most since October 2007 as factories raised production of cars and computers. Output rose 0.4 percent in June from May, the Office for National Statistics said today in London. Economists predicted a 0.1 percent drop.
On a yearly basis, industrial production recorded a decrease of 11.1% and manufacturing output slipped 11.7% in June.
Meanwhile, a report from the Chartered Institute of Purchasing and Supply and Markit Economics showed that Britain's services sector rose more than expected in July, with the headline index rising to 53.2 from 51.6 in June. Economists had expected the reading to come at 51.8.
Earlier today, the Nationwide Building Society said that consumer confidence in the UK improved in July on expectations of higher house prices in the next few months. The consumer confidence index edged up to 60 in July from 59 in the preceding month.
In addition, Lloyds Banking Group Plc's Halifax division said U.K.'s house prices rose 1.1% month-on-month in July, reversing the 0.4% drop in June. This was the second increase in the last three months and climbed much more than the expected rise of 0.6%. House prices were down 12.1% on an annual basis.
Today's reports added to evidence that Britain is shrugging off the recession and the broadly stronger picture may also encourage some investors to bet that the Bank of England will refrain from expanding its 125 billion pound asset purchase program on Thursday.
The Bank of England and the European Central Bank are scheduled to meet tomorrow to decide on interest rates. Analysts expect both banks to keep their benchmark rates unchanged at 0.5 percent and 1 percent, respectively.
During European deals on Wednesday, the pound rose to 1.7031 against the dollar. This set the highest point for the pound since October 21,2008. On the upside, 1.75 is seen as the next target level for the U.K. currency. At yesterday's close, the pound-dollar pair was quoted at 1.6942.
The pound-dollar pair has been steadily gaining after it touched a 23 1/2 -year low of 1.3507 on January 23 on speculation the global recession will ease soon. A rally in stock markets, interest rate cut and stimulus packages by central banks and some encouraging economic reports around the world helped the U.K. currency to extend its uptrend in the subsequent months.
Thus far this year, the pound has appreciated more than 20% against the dollar, following a 27% drop in 2008.
The pound that closed yesterday's trading at 1.7962 against the Swiss franc jumped to a 6-week high of 1.8083 in European deals on Wednesday. If the pound-franc pair gains further, it may likely target the 1.812 level.
The franc plunged today after Swiss Reinsurance Co., the world's second-largest reinsurer, reported a quarterly loss because of impairments on securitized products and the cost of hedging corporate bonds.
The loss was 381 million Swiss francs in the second quarter, compared with a profit of 564 million francs in the previous year, the Zurich-based company said in an e-mailed statement today. Loss per share was CHF 1.13 during the second quarter of 2009.
The pound that tumbled to a 5-week low of 1.7398 against the franc on July 13 has gained around 4% since then.
In European deals on Wednesday, the pound strengthened to a new multi-week high of 0.8469 against the euro. The next upside target for the pound is seen around the 0.844 level.
Eurozone retail sales declined 2.4% year-over-year in June, compared with a 3% drop in the preceding month, revised from 3.3% fall estimated initially, the Eurostat said today. Economists expected sales to fall 2.2%.
Month-on-month, retail sales were down 0.2% in June, following a 0.5% fall in the preceding month. Economists had expected an increase of 0.3%. Retail sales excluding automotive fuel also declined 0.2%.
The pound surged up to a 5-week high on Monday after a report showed that U.K.'s manufacturing sector expanded for the first time since March 2008 in July. The 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.
But the U.K. currency eased yesterday and bounced between 0.8484 and 0.8529 against the euro. At yesterday's North American session close, the euro-pound pair was worth 0.8508.
Against the yen, the pound edged higher in early European deals on Wednesday. At present, the pound-yen pair is trading at a new multi-month high of 162.32, compared to Tuesday's close of 161.40. If the pair climbs further, it may likely target the 162.6 level.
The pound-yen pair has advanced 10% after it touched a 7-week low of 146.81 on July 08.
Investors are now likely to focus on the New York session, in which the ADP National Employment report, which sheds light on non-farm private employment, is scheduled to be released at 8:15 am ET. The report is usually released two days prior to the Labor Department's employment report. The private sector is expected to have lost 340,000 jobs in July.
The U.S. June factory goods orders report and the ISM non-manufacturing composite index for July are also expected today.
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