Trade FOREX with FXCM

  • Award-Winning Platform
  • 24/7 Customer Support
  • Trade Directly on Charts
  • Free $50K Practice Account

Resources

DailyFX Home / Market Alerts

UK PMI Weakness Likely to Push Rate Hikes Down the Road; Sterling Takes A Dive

By Jonathan Granby
01 June 2011 09:09 GMT

A triple blow was dealt to UK recovery prospects this morning as the May manufacturing PMI not only came in below consensus forecasts, at 52.1 vs. 54.1, but with the previous reading for April revised down, to 54.4 from 54.6, and most worryingly the output sub-component slid through the 50 contraction/expansion divide. The latter came in at 49.9, marking the first negative print since May 2009, while the headline was the weakest since September 2009.

The outcome was hardly an encouraging result and certainly not rate hike supportive. If this deteriorating trend continues through construction and services PMIs we suspect that the two hawks, who are said to be data dependent, and said at the last meeting their votes were “finely balanced” could change their vote at this month’s meeting. Any movement by the hawks back toward the majority group on the MPC will only serve to push any rate action deeper into the second half of 2011 as UK growth worries remain at the fore of the central banks’ concerns.

UK_PMI_body_gbp.png, UK PMI Weakness Likely to Push Rate Hikes Down the Road; Sterling Takes A Dive

The pound took a nose dive in the aftermath of the soggy PMI manufacturing release as anyone betting on action from the Bank of England immediately had to rethink their timetable. After yesterday’s bearish close and support not coming in until the 1.6300 area we could see much deeper setbacks still this morning if things really get moving. With the Bank of England set to continue supporting the UK economy through this rough patch the outlook for the pound remains relatively dim and any gains are likely to be as a result of USD weakness rather than Sterling strength which could make for a very fickle and volatile market.

Written by Jonathan Granby, DailyFX Research Team

provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from

01 June 2011 09:09 GMT