Sterling trims some declines after better-than-expected PMI data

Thursday,   23-Jun-2022   03:32 PM (IST)

Sterling trimmed some of its declines versus the euro and the dollar on Thursday after better-than-expected UK PMI numbers for June, but the pound remained vulnerable to political risks and recession fears. The PMI’s preliminary composite index held at 53.1 in June, above the median forecast of 52.6 in a Reuters poll of economists, and unchanged from May. The pound was down 0.5% against a strengthening U.S. dollar at $1.2208, having earlier fallen below $1.22. Against the euro, sterling edged 0.1% on the day at 85.98 pence, having earlier touched a one-week low. The BoE raised its benchmark rate by 25 bps to 1.25% on June 16 and said it was ready to act “forcefully” if needed to stamp out dangers posed by inflation, despite fears that the rising cost of borrowing could further harm the economy. Investors were also on watch for further signs of political instability as the ruling Conservative Party was contesting two key by-elections on Thursday: one in Tiverton and Honiton in the southwest and another in Wakefield in the north. A defeat in either place could spur Conservative lawmakers to find a way to oust Prime Minister Boris Johnson. In the meantime, official data published on Thursday showed that surging debt interest costs triggered by the leap in inflation forced the British government to borrow more than expected in May at 14 billion pounds ($17.14 billion). Strikes have crippled Britain’s rail network this week as union bosses, train operating firms and the government faced off over demands that workers’ pay increases keep pace with galloping inflation. Data showed on Wednesday that soaring food prices pushed British consumer inflation to a 40-year high of 9.1% in May.