Positive services sector data in the UK, encouraged demand for sterling

The pound continued to show strength against the euro yesterday, posting gains of 0.4% to close at 1.1446.

• Sterling continued to increase its one-week high against the single currency yesterday after a survey of the UK services sector raised hopes that the country’s economy could return to growth in the third quarter.
  
• The UK purchasing managers’ index showed the service sector expanded at a faster rate in August, with the figure coming in at 54.1 versus 53.2 in July. This was the strongest reading since Sept 2007 and was marginally above the forecast of 53.9.
  
• Additionally, firms were also at their most upbeat for two years about their prospects, reinforcing optimism about economic recovery.
  
• Sterling also benefitted from the comments of the President of the ECB, Jean-Claude Trichet, who spoke of a “gradual” and “uneven” recovery and said that the interest rates were likely to remain at 1.0% for the next twelve months.
  
• In trading this morning, the pound has capped its gains against the single currency, with the pound currently trading marginally below yesterday’s closing price.