The pound touched three-week lows against the broadly stronger dollar on Wednesday after data showing that UK manufacturing activity grew more slowly than expected in February, but continued to show strong momentum.
GBP/USD touched lows of 1.2351, the weakest level since February 7 and was at 1.2376 at 09.56 GMT.
The Markit UK manufacturing purchasing managers’ index eased to 54.6 from 55.7 in January, below forecasts for a reading of 55.6, but remained close to a two-and-a-half year high.
Rob Dobson, economist at survey compiler Markit, said the survey suggested manufacturing output could grow by as much as 1.5% in the first quarter.
“The big question remains as to whether robust growth can be sustained or whether it will continue to wane in the coming months,” he said.
The report showed that there was a slight easing in inflationary pressures which had been rising in the wake of the steep drop in sterling following the June Brexit vote.
A separate report showed that UK consumers borrowed more in January than in the previous month but the rate of the increase slowed for a second month in a row, highlighting concerns over rising inflation.
Another report from the Bank of England showed that the number of mortgages for house purchase approved by lenders increased to 69,928 in January, the highest since February last year.
Sterling was higher against the euro, with EUR/GBP down 0.28% at 0.8518 as concerns over the prospects of a Brexit or Trump style shock result in France’s upcoming presidential election pressured the single currency.
Demand for the dollar continued to be underpinned as comments by Federal Reserve officials underlined expectations for a rate hike this month.
New York Fed President William Dudley said Tuesday that the case for tightening monetary policy “has become a lot more compelling”.
Meanwhile, San Francisco Fed President John Williams said that a rate increase was very much on the table for serious consideration at the March meeting.
Fed fund futures are pricing in about a 70% chance of a rate hike in March, according to Investing.com’s Fed Rate Monitor Tool, up from around 25% at the start of the week. Odds of a May increase was seen at 74%, while June odds were at around 85%.
The remarks offset disappointment among investors after U.S. President Donald Trump’s speech to Congress offered few details on his plans for infrastructure spending and tax reforms.
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