Forex News – U.K. economy still contracting but less than expected

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Sterling was boosted after U.K. manufacturing PMI data released today came out higher than expected to show that there was still activity in the manufacturing sector though limited.

The index gave a reading of 49.0 compared to a 48.6 forecast by economists. A reading above 50 indicates expansion, and below shows contraction. This is the second straight month below the 50 line, meaning the British economy is still contacting but less than predicted.

This surprised markets, causing the pound to jump against the dollar. GBPUSD had been falling prior to the data on expectations of a lower reading, touching a session low of 1.6208. After the news at 08:30 GMT, GBPUSD surged to 1.6234 within two minutes.

Meanwhile earlier in the morning, Nationwide Building Society HPI index showed U.K. home prices fell the most in 10 months in August as a slowing economic recovery threatens to undermine demand.

The average cost of a home dropped 0.6 percent to 165,914 pounds ($269,800) from July. From a year earlier, values were down 0.4 percent.