Strong construction data leaves sterling unchanged

Pound has been choppy ahead of the UK election next week

Polls still show Theresa May’s Conservatives winning despite the opposition Labour Party narrowing down her lead

Polls still show Theresa May’s Conservatives winning despite the opposition Labour Party narrowing down her lead

 

Sterling held below seven-month highs against the dollar on Friday, unmoved by stronger-than-expected UK construction sector data, as investors kept an eye out for polls on the country’s general election due in less than a week.

British construction activity grew at its fastest rate since the end of 2015 last month, according to the Markit/CIPS construction purchasing managers’ index (PMI), which jumped to 56 from 53.1, its highest since December 2015 and above all forecasts in a Reuters poll.

But sterling shrugged off the data, partly reflecting the small size of the construction sector – about 6 per cent of Britain’s economy – and a larger focus on the June 8th general election.

Earlier this morning, the pound was down 0.2 per cent at $1.2860. In mid-May, it touched its highest level since September at $1.3048. Against the euro, sterling was 0.3 per cent lower at 87.25 pence.

“Anticipation of perhaps a better than expected release [in services] on Monday could offer the pound some additional support,” said Alexandra Russell-Oliver, currency analyst at Caxton FX, referring to Britain’s dominant services sector for which May’s PMIs are due next week.

“Broadly speaking, the key focus is still on politics and the election.”

Hung parliament

The pound has recently been choppy, with investors unsure if the prime minister, Theresa May, will secure a large majority next week in the face of polls predicting a range of outcomes – from a slim majority for her Conservatives to a hung parliament.

Nevertheless, the currency has held on to its gains since Ms May announced the vote in mid-April, as the polls still show her Conservatives winning despite the opposition Labour Party narrowing down her lead.

“Even after recent falls, markets appear to be pricing in a Conservative majority of around 85 seats on June 8th. While this is down from a peak of 160, it is still larger than an objective reading of recent polls would suggest,” analysts at RBC Capital Markets wrote in a note to clients.

“The longer-term implications of the election are more ambiguous, but sterling’s preference for a larger expected Conservative majority is clear in the short term and the risk is that both fall further.”

Reuters