Pound steadies despite weak economic data

Bloomberg

The pound pared earlier advances following disappointing economic data, as the gloomy economic picture countered the optimism in the market following the decisive Conservative victory in last week’s election.
Sterling returned to the flatline after purchasing managers’ indexes from UK factories posted their weakest performance in more than seven years. The currency had earlier advanced against all its major peers after chief secretary to the Treasury Rishi Sunak said the government plans to put its Brexit legislation before Parliament before Christmas to ensure the country will leave the European Union as planned next month.
“As expected, the UK PMIs came in a tad underwhelming,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA. “In all, I think investors will ignore the data and focus on the new Boris cabinet which should be announced later today and could give us some clues about the likely strategy as we approach the trade negotiations with the EU. The pound remains a buy on dips.”
The pound has recovered significant ground since the election result but with one big barrier removed, the question now is how much further the rally can run. Investors will probably need to see improving economic data or progress in the next stage of talks with the EU to meet the most bullish forecasts, which call for a rally to $1.40 or beyond.
Sterling’s gain was capped at 0.1% and $1.3347 as of 10:20 am in London after surging as much as 2.7% to $1.3514, the strongest since May 2018. It was flat overall 83.44 pence per euro after the data. Analysis from ING Groep NV predicted that price action in the pound should stabilise, with the bank forecasting a trading range of $1.3200 and $1.3520 next week.