Sterling jumps after construction data

The pound is higher versus the US dollar after the UK announced very strong construction figures.

The pound is trading at $1.51, up 0.2% on the day as the UK construction purchasing managers index (PMI) came in at 57 in July. This compares with 51 in June, and was the highest reading in three years. Traders subsequently bought the pound versus the US dollar as they felt that this signals an improvement in the UK economy, and that the stimulus package by the Bank of England (BoE) is paying dividends.

Traders are now focused on the US unemployment data which will be released at 1.30pm (London time). The current rate of unemployment in the US is 7.6%, and economists are expecting it to fall to 7.5%. If we see a large drop in the unemployment rate we could see traders sell the pound and buy the US dollar, as a low jobless rate could trigger tapering fears.

On Wednesday the ADP employment report came in at 200,000 beating expectations, while initial jobless claims dropped by 19,000 yesterday, falling to a five-and-half-year low. Some dealers are therefore already pricing in a strong figure from the US.

Spot FX GBP/USD chart

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