FX round-up: Sterling rises after manufacturing data, ahead of Fed
Sterling returned a mostly positive performance after its long May Day bank holiday, and got a boost early on from better than expected UK manufacturing data amid caution ahead of tomorrow's US Federal Reserve interest rate decision.
UK's April's manufacturing purchasing managers' index from IHS Markit and CIPS unexpectedly hit a three-year high of 57.3, from 54.2 in March and well above views for a modest fall.
"This has seen the pound hold up well, also shrugging off the weekend parlour games from Brussels about the recent meeting between UK PM Theresa May and Jean Claude Juncker," said Michael Hewson, chief market analyst at CMC Markets UK.
"This continued resilience seems to underscore that markets are starting to turn a tin ear with respect to the twists and turns in the politics for now, and are focusing more and more on the economics," he added.
On these fronts, the market was keeping close tabs on forthcoming events, said Jasper Lawler, senior market analyst at London Capital Group.
"Event-risk like Wednesday's US interest rate decision and the final round of French elections at the weekend may just need to pass to make room for the next leg higher," said Lawler.
At about 17:02 BST, sterling was up 0.26% to $1.2919 and up 0.16% to €1.1842. Sterling also rose on the aussie, loonie, kiwi and yen, but fell on the rand.
"The pound gained against the euro on Tuesday after UK manufacturing data leaped ahead of expectations while the Eurozone equivalent underwhelmed," said Lawler.
"The euro unwound most of its gains from Monday following a reportedly testy meeting between PM Theresa May and President of the European Commission Jean-Claude Juncker.
"Gains in the pound against the euro says markets are concluding a rift with the unelected and generally disliked Juncker probably helps May's election prospects."
The dollar-spot index was up 0.03% to $99.109, with the greenback falling on the euro, kiwi and rand, but rose on the aussie, loonie and yen.
Lukman Otunuga, research analyst at FXTM, said dollar bears have been unleashed by the recent string of soft economic data from the US, leaving investors questioning whether the Federal Reserve will raise interest rates again this year.
"The Trump rally continues to display signs of exhaustion as scepticism mounts over Donald Trump's ability to move forward with the proposed fiscal spending."
"Although markets reacted to a big tax announcement last week that offered little detail on the tax reform, it must be kept in mind that support for the proposed reforms does not mean they will be passed through congress."
Thus, he said, the market would direct much attention to the Fed's meeting and US jobs data, which could lead to some dollar volatility.
"While markets widely expect the Federal Reserve to leave interest rates unchanged in May, investors may scrutinise the meeting's tone for any clues or confirmation of a June interest rate increase."