Disappointing manufacturing data ends Sterling rally

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4 April 2017


The Pound’s mini rally against the US Dollar over the past few trading sessions was brought to a temporary end on Monday following the release of a slightly underwhelming set of manufacturing data.

he monthly manufacturing PMI from Markit unexpectedly declined to 54.2 in March from 54.6 (Figure 1), suggesting that the UK economy may be losing steam as Britain begins formal negotiations on its EU exit. A decline in exports and faltering consumer spending amid high inflation were to blame, sending the index to its lowest level since November.

Figure 1: UK Manufacturing PMI (2014 – 2017)

However, overall activity remains fairly solid and comfortably above the level of 50 that denotes expansion. So far, economic data in the UK is far from the doom and gloom levels that many economists had forecast before the Brexit vote last year.

Meanwhile, the Euro remained under pressure as markets opened for the week, with recent poor inflation data and uncertainty over the outcome of the French election weighing on the single currency. National Front leader Marine Le Pen continues to hold a slender lead in the first round polls, although looks a long way off challenging either Macron or Fillon in the second round of voting in May.

China’s Vice Foreign Minister also reiterated that the country would not devalue its currency ahead of the President’s highly anticipated first meeting with Donald Trump on Thursday. Trump unnerved investors over the weekend by his claim the US will “solve” the nuclear threat from North Korea, with or without China’s help.

Major currencies in detail


Sterling fell 0.2% against the US Dollar following yesterday’s PMI miss.

This morning’s construction PMI is unlikely to shift Sterling given the sectors minimal contribution to overall GDP. Investors will instead look to Wednesday’s services index as a much more significant indicator of overall economic activity within the UK.

Currency markets remain generally upbeat about economic prospects in the UK following the recent stream of better-than-expected economic news. Sentiment could quickly be reversed if Wednesday’s services data was to come in weaker as well, given the services industry’s much larger contribution to GDP.


The single currency dipped to a three week low on Monday, although ended London trading effectively unchanged against the US Dollar.

Manufacturing data out of the Eurozone yesterday came in right in line with expectations. The monthly PMI was unrevised from the flash estimate at 56.2 for March, its highest level in six years. The latest unemployment numbers were also in line with consensus and the reaction in the Euro was minimal as a result. Unemployment fell to a near 8 year low 9.5% in February, adding to the general optimism in economic conditions in the Eurozone that has caused some onlookers to bring forward their expectations for interest rate hikes by the European Central Bank this year.

Retail sales for February are expected to show a modest uptick on a month previous this morning. The latest polls out of France will take on added importance this week with under three weeks to go until the first round of voting.


The Dollar edged 0.1% higher against its major peers yesterday.

Manufacturing data out of the US yesterday was mixed. The PMI from Markit fell to its lowest level in six months in March, while a similar measure from ISM continued to show a steady rate of growth in the sector. The index from ISM came in at an above forecast 57.2 for last month, just shy of the two year high recorded in February.

This Friday’s nonfarm payrolls report will undoubtedly be the main event in the currency markets this week. In the meantime, the Federal Reserve will be releasing the minutes of its March FOMC meeting on Wednesday. Investors will be looking for clues as to the likelihood of more than 3 interest rate hikes in the US in 2017.