Hopes of UK economic rebound send pound exchange rates higher

A strong result from the latest Markit UK manufacturing PMI pushed the pound higher yesterday as the data suggested the sector would be a positive contributor to economic growth this quarter.

GBP/EUR is on the decline this morning, falling to €1.1166, and GBP/USD is stuck around opening levels at US$1.3215. GBP/AUD has slipped to AU$1.6585 and GBP/NZD has weakened to NZ$1.7760 after jumping on the back of New Zealand’s disappointing jobs data. The pound is recording strong gains versus the Canadian dollar, with GBP/CAD up 0.3% to CA$1.6621.

The only UK data scheduled today is the construction PMI - read on to see what impact this release is likely to have...

What’s been happening?

The pound was on strong form yesterday versus most of its peers after the latest manufacturing data bettered forecasts.

The Markit manufacturing PMI showed a stronger pick-up in activity than expected, with the index rising from 54.2 to 55.1, instead of to the forecast 54.5. The survey revealed a strong uptick in demand for export orders and suggests that manufacturing will contribute to economic growth this quarter, after contracting in the second quarter.

GBP/EUR was able to rise despite a strong dataset from the Eurozone. Although the manufacturing PMIs for the currency bloc largely inched back from their highs seen in the previous month, growth was nonetheless solid during June.

It marked the 49th consecutive month in which the Eurozone has seen its manufacturing sector grow.

GDP figures showed 0.6% growth on the quarter and an uptick to 2.1% on the year. This was as expected and a rather middling figure; steady growth is clearly better than slowing growth, but markets would prefer some acceleration.

With inflation still far below target, even after the better-than-forecast figures released recently, it is unlikely strong economic growth alone will convince the European Central Bank (ECB) to tighten interest rates.

Mixed US data kept the GBP/USD mildly higher. The Fed’s preferred measure of inflation - personal consumption expenditure - beat forecasts to print at 1.5%, but the ISM manufacturing index fell to 56.3.

What's coming up?

The UK construction PMI for July is set for release today. Construction is only a small contributor to UK GDP, so will be the least-important of the week’s four PMIs. However, it could cause tremors if it prints lower-than-expected, unlike the manufacturing PMI.

Markets like patterns, so differing performances from the manufacturing and construction PMIs may create some uncertainty ahead of the key services index on Thursday.

There isn’t much on offer from the Eurozone - just producer price figures - so GBP/EUR may be in for a calmer day than yesterday.

US data is fairly lacking in supply, but Federal Reserve officials Loretta Mester and John Williams are set to give speeches, which could contain hints on the future of monetary policy.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.