GBP Pares Losses as Boom in Orders for UK Businesses Weighs

The flash IHS Markit/CIPS UK Composite Purchasing Managers’ Index rose to a seven-month high as Britain’s swift roll-out of COVID-19 vaccines bolstered confidence among British businesses.

The pound was down 0.3% to $1.3715 at 1110 GMT, after falling to its lowest since Feb. 5 of $1.3675 in earlier London trading.

Versus the euro, it was flat at 86.22 pence, after touching its lowest since March 5 of 86.45 pence at 0729 GMT.

“Today’s numbers are consistent with our view that brighter days are ahead for the economy. For investors, we still see further upside in sterling,” said Dean Turner, economist at UBS Global Wealth Management.

Earlier this year, bets that Britain’s rapid vaccination drive would lead to a faster reopening of an economy propelled the pound above $1.42 in February.

But a strengthened dollar on rising bond yields and the European Union considering banning COVID-19 vaccine exports to Britain, have knocked sterling from its perch of being the best-performing G-10 currency.

In early London trading, sterling had slipped to its lowest against the dollar in almost seven weeks after data showed a surprise decline in inflation in Britain in February.

British consumer price inflation unexpectedly fell to 0.4% in February from 0.7% in January, reflecting the biggest annual drop in clothing prices since 2009. A Reuters poll forecast it would edge up to 0.8%.

British two-year government bond yields hit a one-month low and briefly dipped below zero when trading started after the release of weak inflation data.

“Weaker-than-expected UK CPI data should serve as a reminder that reflation is still in the early stages in the UK,” said Jane Foley, head of FX strategy at Rabobank.

Foley said that the inflation numbers were a signal that “optimism may be a little too much, too soon”.