By Claire West

After yesterday’s sharp sell-off, sterling has received a boost this morning after data revealed that activity in the UK services sector accelerated in October.

Sterling is enjoying a slight recovery as the Purchasing Managers Index (PMI) for the non-manufacturing industry rose to 53.2 this month, exceeding the market forecasts of only modest growth to 52.8. It marks the second consecutive month that growth in the sector has accelerated helping to offset some of the damage done by the uninspiring construction figures. Yesterday’s sell-off seems to have been a slight overreaction and the pound has bounced back with the outlook for the fourth quarter steadily improving.

Duncan Higgins, senior analyst at Caxton FX says, “It’s a good sign that both the manufacturing and services sectors have shown improved levels of activity this month. This marks the highest pace of growth reached since June, reflecting a strong gain in new business.

There is still a high level of concern looking ahead with the full impact of the government’s cuts yet to be realised. However, the UK economy does appear to be in a stronger position at this juncture than many would have anticipated.”

Higgins continues, “The pound is on a stronger footing than has been seen for a while. The threat of quantitative easing has kept sterling depressed, but the upturn in economic fundamentals is likely to keep the BoE from taking any action this month. Investors may have gone too short on the pound pricing in QE, and there is room for further gains in the short term, particularly against the euro.”

Following the data, sterling has ticked half a cent higher against the euro to reach $1.1480. The pound is also up against the US dollar, hitting a fresh one-year high above $1.61 ahead of this evening’s Fed announcement.