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Brexit Briefing: British Pound Struggles Despite Strong UK Manufacturing Data

Brexit Briefing: British Pound Struggles Despite Strong UK Manufacturing Data

Nick Cawley, Strategist

Talking Points

- GBPUSD under pressure against a strong US Dollar.

- Ipsos Mori poll sees another European country holding an EU referendum in 2017.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

UK Prime Minister Theresa May received an early boost ahead of this year’s European Union divorce proceedings, with UK manufacturing hitting a 30-month high in December, fueled by strong overseas and domestic demand. The IHS Markit manufacturing index jumped to 56.1 from an upwardly revised 53.6 in November as the weaker currency continued to make UK Inc. more attractive to overseas investors. All eyes will now be on the dominant UK services-sector reading Thursday to see if the country can continue to push aside the post-Brexit negativity.

And it may not just be the UK negotiating exit terms with Europe, according to the Ipsos Mori Annual Predictions Poll. While nearly 80% of Britons think May will begin the process of leaving the EU in 2017, the same percentagethink it likely that another European country will decide to hold a vote on leaving the bloc. With the Netherlands, France, Germany and possibly Italy all holding general elections over the course of 2017, it may be a busy year for Brussels.

Britons were more pessimistic when looking at economic indicators next year however, according to the poll. Around 45% of respondentsthink unemployment will rise in 2017, up from 36% when asked about 2016. Britons are also concerned about the rate of inflation, with 66% thinking that it will increase in 2017, compared with 52% when asked about 2016.

Elsewhere, there was some bad news for May as the UK’s ambassador to the EU, Sir Ivan Rogers, unexpectedly resigned Tuesday. In December, Rogers warned ministers that a UK-EU trade deal could take up to 10 years to finalise and might still fail. In response, the Prime Minister’s spokesperson said that this was not the view of the government or Rogers, and that he was relaying other EU members’ views.

Meanwhile, the British Pound came under external pressure during the afternoon session after the US ISM manufacturing index hit its highest level since December 2014.

Chart: GBP/USD 5-Minute Timeframe (January 2 to 3, 2017)

Brexit Briefing: British Pound Struggles Despite Strong UK Manufacturing Data

--- Written by Nick Cawley, Analyst.

To contact Nick, email him at nicholas.cawley@ig.com

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