The pound surged to a three month high against the euro yesterday on the back of the best UK manufacturing data for over two years with both output and new orders expanding sharply with UK manufacturing suggesting that third quarter growth could easily break through the 1% mark.
The survey showed that domestic orders were the main source of increased activity but exports grew as well with UK manufacturers reporting an increase in demand from the US, China, mainland Europe, India, Scandinavia, Brazil and Ireland.
The survey is the latest in a run of positive news for the UK economy after official figures for the second quarter showed that the UK economy grew at an upwardly revised rate of 0.7% and just last week, the British Chambers of Commerce upgraded its forecast for the growth of the UK economy.
In addition, property analytics firm Hometrack reported yesterday that activity in the UK housing market has risen to its strongest level in six years in August.
Yesterday’s data will only add to speculation of another boom in the housing market after figures last week showed that mortgage approvals for new home purchases in July jumped to their highest level since March 2008.
In the euro zone, data out yesterday showed that the euro zone manufacturing sector continued to gather pace in August with the Purchasing Managers' Index (PMI) hitting a 26-month high after economic growth improved in Germany, the Netherlands, Italy, Austria and Ireland.
The better than expected manufacturing data boosted risk sentiment in the markets, decreasing demand for the safe haven appeal of the US dollar but boosting the fortunes of high yielding currencies like the Australian dollar. The latter has received a further boost overnight with the decision of the Reserve Bank of Australia to keep interest rates unchanged at their record low level of 2.5%.
Sentiment was further improved by the lack of military action over Syria with the weekend announcement from the White House that US President Barack Obama will seek the approval of Congress for any military action against Syria which means any air strikes will only commence after 9 September at the earliest.