The pound (GBPUSD=X) rose almost 0.6% against the dollar on Thursday as Britain’s private sector grew at its fastest pace in four months.
Sterling was trading at $1.2555 at the time of writing on the back of the news, touching its highest against the US greenback since early September during the session. It was also up 0.3% against the euro (GBPEUR=X) at €1.1504, having briefly touched a nine-day high against the single currency.
The US retreated during the session amid low volume and thin holiday-impacted trade. Traders are also digesting recent economic data and what it potentially means for the Federal Reserve’s interest rate policy.
“Part of the rebound in the dollar observed over the past two sessions … may well be related to some profit-taking on risk-on trades and more defensive positioning ahead of Thanksgiving,” said analysts at ING, in a note.
Read more: FTSE slides, Europe mixed after UK’s autumn statement and ECB minutes
Meanwhile, according to the latest S&P Global/CIPS Flash UK purchasing managers’ index (PMI), the UK’s services sector unexpectedly returned to growth in November, with a reading of 50.5.
This was thanks to the Bank of England (BoE) holding interest rates steady at 5.25% for a second meeting in a row, as well as improving business conditions.
The reading was up from 49.5 the previous month and ahead of analyst predictions of 49.5. Any figure above 50 indicates an expansion, whilst a reading below it means contraction.
Overall the private sector reading came in at 50.1.
“The UK economy found its feet again in November as the service sector arrested a three-month sequence of decline and manufacturers began to report less severe cutbacks to production schedules,” Tim Moore, economics director at S&P Global Market Intelligence said.
“Relief at the pause in interest rate hikes and a clear slowdown in headline measures of inflation are helping to support business activity, although the latest survey data merely suggests broadly flat UK GDP in the final quarter of 2023.”
Read more: Trending tickers: Arm | Jumia | Country Garden | Virgin Money
Meanwhile, John Glen, CIPS chief economist, added: “November’s data reveals welcome signs of calmer waters ahead for the UK economy, albeit with indications that there is still a little way to go before we are completely out of the inflationary storm.”
The pound also moved higher as economists adjusted expectations for interest rate cuts after Jeremy Hunt’s autumn statement this week.
The chancellor’s decision to hand out tax cuts has raised concerns about inflation, meaning financial markets are pushing back forecasts for the first rate cuts.
Money markets are now betting that the first cut will come in by September next year, instead of by June.
Watch: How does inflation affect interest rates?
Download the Yahoo Finance app, available for Apple and Android.