London - Sterling rose to its strongest in a month against the euro on Monday after a survey of UK manufacturing purchasing managers came in stronger than forecast and highlighted the diverging outlooks between the British and euro zone economies.
The manufacturing PMI came in at 53.2 points, compared to a consensus forecast of 51.2, reinforcing Britain's status as one of the few European economies still growing healthily.
Euro zone manufacturing activity expanded at a slightly slower pace than first thought last month as further discounts at the factory gate failed to drive up new orders, a business survey showed on Monday.
“With all that has been going on, sterling is performing extremely well,” said Ian Stannard, head of European currency strategy with US bank Morgan Stanley in London.
“This data is going to add to that and euro/sterling is heading back down to the lows we saw a month or so ago.”
The pound traded at 78.105 pence per euro, a quarter of a percent stronger on the day and within sight of a more-than-two-year peak of 77.665 pence hit on September 30.
Against the dollar, sterling reached a day's high of $1.6027 (R18) before retreating to trade down 0.1 percent on the day at $1.5975.
Sterling has struggled all of last week against the dollar as Bank of England policymakers have emphasised that interest rates would stay at their record low level for longer than previously thought.
Changing expectations on interest rates and political uncertainty have knocked sterling off its perch as the best performing of the world's major currencies earlier this year.
Scotland's referendum on independence in September launched a season of political concern which is now likely to last at least until Britain's parliamentary election next year.
Thereafter there may also be a vote on leaving the European Union to unsettle financial investors, with latest signs at the weekend suggesting Germany for the first time regarded Britain's departure as a possibility.
“The combined effect of a softer external, especially eurozone picture, and the increased political uncertainties ahead are likely to put some renewed drag on business sentiment,” said Susanne Galler, currency strategist at Jefferies.
She said support for sterling at $1.5850-75 looked vulnerable.
Still, even after a pushback last month, the BoE is one of the few developed world central banks likely to raise rates within the next year, underpinning the pound, especially against lower yielding currencies like the yen, euro, Swedish crown and the Swiss franc.
Against the yen, which was battered in the aftermath of last week's surprise round of policy easing by the Bank of Japan, the pound rose to a six-year high of 182.17 yen. - Reuters