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FX round-up: Weak manufacturing reverses pound's gains against euro
Sterling slipped back against the euro after weak manufacturing data dented confidence in the economy but the pound held on to gains against the weakening dollar.
The pound had a positive start to the day, rising against the euro and the dollar as traders shrugged off short-term wrangles over Brexit. But sterling dipped against the euro in afternoon trade as investors digested disappointing figures from the purchasing managers index for January.
Manufacturing growth weakened for the second month running as raw materials costs rose, and new orders dropped to a seven-month low. By contrast, eurozone manufacturing showed a strong start to 2018 in its PMI survey for January. The pound was down 0.1% to 1.1418 at 13:44 GMT.
Lukman Otunuga, research analyst at online broker FXTM, said: "Weaker-than-expected data from Britain's manufacturing sector weighed on sentiment. This disappointing report is likely to instil bears with fresh inspiration to attack the British pound."
Sterling remained in positive territory against the dollar, which continued to weaken against most major currencies. The dollar's more than 10% decline since the start of 2018 has been driven partly by questions over monetary policy under new leadership at the Federal Reserve but also by signals from the Trump administration that it favours a weaker currency for protectionist reasons.
Joachim Fels, global economic adviser at Pimco, said the US was conducting a "cold currency war" to bring down the value of the dollar. He said cold wars were fought with words and covert actions, adding: "These actions are sending an implicit but very clear signal to markets: a weaker dollar is the goal. Markets have understood the signal."
The pound rose 0.2% to $1.4216 while the euro gained 0.3% to $1.2456. Against the yen the dollar held on to gains made in earlier trading, rising 0.2% to 109.44 yen.
Elsewhere in Asia, the recent impressive appreciation of China's yuan has been due to the weakening of the US dollar, while the People's Bank of China has allowed the currency to appreciate over and above what was required to keep it stable against its basket.
"We think," said Louis Kuijs at Oxford Economics, "this happened because China's policymakers have been comfortable accepting some of the appreciation pressures on the FX market amid improved sentiment. However, looking forward, we do not expect much more CNY appreciation, either against the US$ or the basket."