Sterling positive after troubled Christmas

The Pound has performed very well today following stronger than expected UK manufacturing data for the last quarter of 2010. This is welcome news for anyone looking to convert sterling into other currencies, following the pound’s weakness over the Christmas period.

December’s Purchasing Managers Index (PMI), a monthly gauge of manufacturing output, hit a 16 year high reaching 58.3, up from 57.5 in November. Any number above 50 is considered to be good. Manufacturing output was at its highest since May, export orders increased rapidly and employment was just slightly down from the record set in November.

As any major economy recovers from a recession, manufacturing should be one of the first sectors to benefit. As a weak Pound makes exports appear more competitive and high unemployment puts a downward pressure on wages.

Strong manufacturing suggests that the UK will recover from her recent recession and the economy will be able to withstand public sector spending cuts and tax increases, with VAT rising to 20% today.

"The PMI numbers are a very positive surprise which shows that the manufacturing sector is still going great guns and not showing any visible signs of disruption by the snow over the month," said Philip Shaw at Investec.

Over on the continent, the Euro has also risen against many currencies. This is due to stronger than expected inflation data. The European Consumer Price Index (CPI) came in at 2.2% in December, above the expected 2% and also up from November’s 1.9%. Central banks look to increase interest rates when inflation is high, which increases demand for that currency.

This explains the Euros rise against the US Dollar and other major currencies.

In other news the Australian Dollar is under pressure, as traders cited concerns about the massive floods in the country’s North West. The Australian economy is heavily reliant on commodity exports and the floods have hit a major exporting area of the country.
According to Reuters the flood ‘has severed roads and closed ports, curtailing production of coal, Australia's top export’. As well as having a major human cost, this has the potential to have a noticeable economic impact.