British Bound Diverges from Risk Trends as Growth Outlook Becomes Driver

The GBP/USD rose sharply following a robust manufacturing report but failed to break from its bearish trend as the pound has been under pressure on the back of a dimming growth outlook. The December PMI reading improved to 58.3 from 57.5, besting expectations for a decline to 57.2 and reaching the highest level in 16 years. We have started to see yield expectations grow in importance in determining direction for the pair with its correlation rising to 32%, putting a greater focus on U.K. fundamentals.