Pound to euro holds onto 1.2 level; new hopes that Bank of England won't he too heavy on the printing presses

Last Updated on Wednesday, 01 February 2012 15:11 Written by Sam Coventry Wednesday, 01 February 2012 15:07

Pound to Euro: The British pound refuses to let back ground gained yesterday against the euro.

---

The pound euro exchange rate is at 1.2033.

The British pound refuses to let back ground gained yesterday against the euro.

A risk-off day yesterday saw the safer pound advance, and in today's strong risk-on trade the British pound has failed to budge.

---

Advertisement - Article Continues Below

---

The reason? A great set of UK Manufacturing PMI data came through to anchor the GBP to the 1.2 level.

UK manufacturing PMI continued to recover in January, as it leaped to 52.1 from 49.7, rising above 50 for the first time since September.

New orders also rose from 49.7 to 52.2, as foreign demand picked up and input and output prices continued to moderate.

We also saw a moderation of inventories, which altogether provides good ground for a more a bullish expectation for the survey next month.   

This is supportive to the pound because investors are now starting to contemplate the notion that the Bank of England will not have to print as much sterling in 2012 as had previously been assumed. Indeed, the UK could avoid technical recession now.

Eurozone flash CPI estimate for January remained unchanged at 2.7%y/y as expected. Italian Manufacturing PMI rose from 44.3 to 46.8 (mkt 45.3), trailing the improvement in PMIs across Europe.

Germany sold €4.1bn of bunds (target €5bn) at an average yield of 1.82%. The bid/cover was 1.4. Compared with the last auction on Jan 4, demand was marginally stronger.