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Sterling continues to surprise

Sterling rose to near a 7-week high against the dollar on today, amid expectations that Britain had probably dodged a recession in coming months with the economy showing signs of resilience in the aftermath of the shock Brexit vote.

The pound also hit a four-week peak against the euro, with sentiment bolstered by the recent slew of robust data that has lessened the chances of further monetary easing by the Bank of England.

On Monday, the Purchasing Managers’ Index (PMI) for the dominant services sector showed the biggest one-month gain in the survey’s 20-year history, beating all forecasts in a poll. The survey echoed the upbeat tone of data released last week on the manufacturing and construction sectors in August and bolstered a view that the economy was holding up well so far.

Sterling may squeeze up a bit more but many investors will see this a chance to sell – it would be a surprise if it managed to get through $1.35, before falling again.

The Bank of England cut rates near zero early last month and launched an asset purchase to cushion the economy from the shock decision to leave the EU.

On Monday, Morgan Stanley economists raised their growth forecasts for the United Kingdom and adjusted their BoE easing call, delaying the next tranche of asset purchases to Feb 2017.

Key data today is Eurozone GDP out at 10am, followed by US ISM Non-Manufacturing at 3pm.

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