Pound Heads Higher On Solid Manufacturing, Housing Data

 | Nov 06, 2013 12:46PM ET

The British pound continues to point upwards and is trading in the high-1.60 range in Wednesday trading. The pound has posted solid gains this week, gaining about 150 points against the US dollar. British Manufacturing Production posted a gain and met expectations, while Halifax HPI had its best showing in three months. There were no major releases out of the US on Wednesday.

British releases continue to look sharp. Manufacturing Production gained 1.2%, recovering nicely from a 1.2% decline last month. Industrial Production also looked sharp, rebounding from a decline of -1.1% in September, with a gain of 0.9% in October. There was more good news from Halifax HPI, which jumped from 0.3% to 0.7%, a three-month high. These strong gains point to continuing improvement in the UK economy, and the pound has taken advantage as it trades above the key 1.60 level.

British PMIs have enjoyed an excellent week. Construction PMI climbed to 59.4 points in October, its best reading since September 2007. This was followed by Services PMI on Tuesday, which improved to 62.4 points, compared to 60.3 points the month before. This figure was the best we've seen since May 1997, as the UK services sector continues to improve as each month passes.

The week started on a positive note for US key releases. The ISM Non-Manufacturing PMI rose to 55.4 points in October, up from 54.4 the month before. This beat the estimate of 54.0 points. We’ll get a look at Unemployment Claims and Non-Farm Payrolls later in the week, and if these numbers are strong, there is sure to be talk of QE tapering in December, as the Fed has said on numerous occasions that the employment market must improve before QE tapering can occur.

The Federal Reserve met for a policy meeting last week, the first since Congress reached an agreement on the debt ceiling and the shutdown. As expected, the Fed said that it would maintain QE at current levels of $85 billion each month. However, the Fed's policy statement was less dovish than expected, as the Fed noted that the economy was expanding "at a moderate pace" and left the door open for QE tapering in December. Still, the prevailing view in the markets is that short of a sharp turnaround in US numbers, QE tapering will be on hold until early 2014.

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