February 1, 2013 / 9:12 AM / 5 years ago

Sterling falls before PMI data, looks vulnerable

LONDON (Reuters) - Sterling fell against the euro on Friday and looked vulnerable to further losses ahead of a manufacturing survey that will give more clues on the extent of the British economy’s struggles.

The euro was up 0.3 percent on the day against sterling at 85.88 pence inching towards Wednesday’s peak of 86.065, its highest since December 2011.

Manufacturing PMI data for January is due at 9:28 a.m. British time. A weak number would suggest the economy started the year badly, raising concerns the UK has slipped back into recession and weighing on sterling.

The pound has been under pressure since data last week showed the economy shrank in the last three months of 2012.

“The PMI is the first figure of note that gives us some gauge of 2013 UK data. After such weak Q4 GDP data, everyone will be looking at this figure so it could have a big impact on sterling,” Kathleen Brooks, research director at FOREX.com.

Market consensus is for a PMI reading of 51. Analysts said a figure below 59 - indicating the sector is contracting - could reinforce concerns.

Sterling was down 0.1 percent on the day against the dollar at $1.5845. It faced stiff chart resistance at its 200-day moving average of $1.5895.

Technical analysts said key support lies around $1.5690, the 61.8 percent retracement of the move up from $1.5270 in June 2012 to the January high of $1.6380.

A failure to sustain gains above this level could cause the pound to re-test the five-month low of $1.5674 hit on Monday.

“If there is a positive surprise (in PMI) it will be interesting to see whether cable (sterling/dollar) can stay in lockstep with euro/dollar, or even outperform,” analysts at KBC said in a note.

The pound has already lost nearly 3 percent against the dollar this year. Strategists said while the pace of the losses may slow, further falls were likely.

The threat of another recession in the UK has fuelled speculation the Bank of England may opt for more policy easing, while an easing of market tensions surrounding the euro zone has hurt sterling’s status as a safe-haven alternative to the euro.

Later on Friday the focus will switch to U.S. jobs data at 1330 GMT.

“If we get a stronger-than-expected payroll figure the dollar could firm so cable could come off a little bit,” Brooks said. “But if it is weaker, it supports more easing by the U.S. Federal Reserve and cable could gain.”

Editing by John Stonestreet

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