Sterling rallies to three-week high against euro following data

Sterling rose in European trade for the third straight session against euro to three-week highs following data that showed the UK might avoid recession this quarter. 

Such data bolstered the case for upcoming policy tightening by Bank of England by nearly 50 basis points in March, and a potential rate hike in May.

EUR/GDP fell 0.9% to 0.8795, the lowest since January 31, with a session-high at 0.8887, after rising 0.1% yesterday, the second profit in a row following strong UK retail sales data. 

Strong Data

UK manufacturing PMI rallied to 49.2 in February from 47 in January, beating estimates of 47.5. 

UK services PMI rallied as well to 53.3 in February, the highest since June 2022, from 48.7 in January, and beating estimates of 49.2. 

Analysts pointed to stronger activities by private sector companies this months, ending six months of low production.

Analysis

Economists believe that  as the UK economy shows resilience, it bolsters the case for multiple more rate hikes by Bank of England this year. 

However the manufacturing PMI has to come above 50 if the economy is to avoid recession by a comfortable margin.