After the upward surprise in UK construction PMI this morning, which showed the sector move back into expansionary territory, GBPUSD has pushed above 1.6200.

This news on construction adds to the positive data surprises for the UK after the latest manufacturing PMI released yesterday also reached a 16-year high.

This has all but reversed last week's Q4 GDP disappointment and interest rate expectations have also moved higher, which is boosting the pound especially against the dollar and the yen.

The UK-US 2-year yield spread is now its widest level for 2-years, supporting GBPUSD at 1.6200.

This reinforces the weak dollar theme based on its lack of yield support right now.

UK-US 2-year government bond yield spread and GBPUSD (green line)

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GBPJPY: yields supportive of further gains

 

The spread between UK and Japanese 2-year government bond yields (white line on chart below) is also at a 2-year high, which supports further gains in GBPJPY above 132.00. When the spread was last this wide, GBPJPY was on its way to 145.00!

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EURGBP: yields less of a boost for the pound.

 

Although the spread between UK and German yields (white line in chart below) also spiked this morning, they are only recovering some of the steep decline in the spread in recent weeks. Positive UK data combined with expectations of ECB rate hikes in the coming months are likely to keep EURGBP fairly range bound in the near-term. .

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Best Regards,

Kathleen Brooks| Research Director UK EMEA | FOREX.com

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