Sterling climbs against dollar despite weak UK construction data

Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

LONDON (Reuters) - Weak British construction industry data failed to halt sterling’s four-day rally against the dollar on Wednesday, as investors focused on an expected interest rate hike in May.

Britain’s construction sector seized up due to a period of heavy snow last month, prompting the biggest drop in activity since just after 2016’s Brexit vote.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) slumped to 47.0 from 51.4 in February, a bigger fall than had been predicted by any economist in a Reuters poll.

But sterling held on to its gains and was up 0.1 percent at $1.4077 after the data, amid broad dollar weakness.

The pound fell 0.2 percent versus the euro to 87.45 pence EURGBP=.

“This isn’t the first time we’ve had weak construction news and given its only a small part of the economy it’s not surprising sterling held strong,” Jane Foley, a senior FX strategist at Rabobank in London, said.

Investors still expected the Bank of England to tighten monetary policy next month by raising rates but “shockingly weak inflation or earnings data due in mid-April could throw a spanner in the works,” Foley added.

Jameel Ahmad, Global Head of Currency Strategy and Market Research at FXTM, said the pound could trade higher this month with investors potentially using $1.40 as a pivot level.

Reporting by Tom Finn; Editing by Alexander Smith