Pound supported by surge in UK manufacturing

After getting off to a slow start to the week the pound rallied across the board thanks to an unexpectedly upbeat UK manufacturing report.

GBP/EUR fluctuated between €1.1790 and €1.1863, GBP/USD advanced from $1.2872 to $1.2947, GBP/AUD climbed to AU$1.7253 from AU$1.7089, GBP/NZD eased to NZ$1.8565 from NZ$1.8694 and GBP/CAD closed the day at C$1.7713.

Will the UK’s other PMI reports lend the pound further support? Keep scrolling to find out...

What’s been happening?

Concerns that a recent meeting between UK Prime Minister Theresa May and European Commission President Jean-Claude Juncker wasn’t exactly amicable saw the pound slide on Tuesday.

However, Sterling’s losses proved short lived and GBP exchange rates were quick to rally after the UK’s manufacturing PMI was published.

Economists had predicted a slight slowing in manufacturing output, but the sector actually accelerated – with the PMI reading of 57.3 being the best result for three years.

Markit economist Rob Dobson had this to say; ‘The UK manufacturing sector made a solid start to the second quarter. Growth of output, new orders and employment all gathered pace, driven higher by the continued strength of the domestic market. ‘

He added; ‘There was also a solid bounce in new export business, as the weak sterling exchange rate helped manufacturers take full advantage of the recent signs of revival in the global economy, and especially the Eurozone, which is enjoying its best growth spell for six years. Although price pressures remain elevated, input cost inflation has eased significantly since hitting a record high in January.’

Meanwhile, the euro fluctuated in response to slightly below forecast unemployment data from the Eurozone and the news that a preliminary agreement had been reached between Greece and its creditors.

What’s coming up?

In the early hours of this morning the British Retail Consortium’s (BRC) shop price index came in at -0.5%, as expected. This was a slight improvement on the previous reading of -0.8%.

The only other UK data scheduled for release today is Markit’s construction PMI.

The measure is expected to show a modest decline in construction output from 52.2 to 52. As the construction sector accounts for such a small proportion of total growth, such a result may not have much impact on the pound.

However, if the index massively over performs (like yesterday’s manufacturing PMI), the pound could gain, while a much lower-than-expected reading would be negative for GBP exchange rates.

Other notable reports to be on the lookout for today include the Eurozone’s Q1 growth data (which is forecast to accelerate slightly on the month but remain unchanged on the year) and the US ADP employment change, Markit services PMI and ISM non-manufacturing composite index.

While all the US reports are fairly high profile, their impact might be limited ahead of this evening’s Federal Reserve interest rate decision.

A rate hike is unlikely at this juncture, but US dollar volatility is expected to follow any hints about future adjustments. The US dollar could tumble if the Fed seems less likely to adjust interest rates in June then it did previously.

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.