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Pound Rallies as PMI Shows Little Contraction in Manufacturing Activity

Pound Rallies as PMI Shows Little Contraction in Manufacturing Activity

Benjamin Spier, Technical Strategist

THE TAKEAWAY: UK PMI for manufacturing for April beats expectations at 49.8 -> Markit says sector may lighten its drag on economy in Q2 -> Pound rallies

The Pound rocketed to a new 2-month high against the US Dollar, following the report that UK manufacturing activity contracted at the slowest pace in three months in April.

Markit’s Purchasing Managers’ Index for UK manufacturing rose to 49.8 in April, beating expectations for 48.5 and higher than the revised 48.6 PMI result in March. A PMI reported below 50.0 indicates a decline in sector activity.

Output and new orders rose in the manufacturing sector for the first time since January, according to Markit. The level of new export work rose for the first time in over a year, but demand in the Euro-zone remained weak. Manufacturing job losses continued for the third straight month in April.

The UK economy grew an unexpected 0.3% in Q1, thereby just missing a triple dip recession after the 0.3% GDP decline seen in Q4. Markit reported that manufacturing acted as a drag on the economy in Q1. With forward-looking indicators such as new orders and the demand-to-inventory ratio also ticking higher, the sector should at least be less of a drag on broader GDP growth in the second quarter,” wrote Markit Senior Economist Rob Dobson.

The Pound rallied about forty five points to 1.5585 against the US Dollar in Forex markets, following the UK PMI release. GBP/USD has risen for six straight sessions and may next see resistance at 1.5593, by the 50% Fibonacci retracement of the decline from January’s high to March’s low. Support may be provided by the 1.5500 key figure.

The European trading session has been otherwise very quiet, as most equity markets are closed for May Day. However, the US session may provide volatility, especially for USD based pairs, as the FOMC announces its rate decision.

GBPUSDDaily: May 01, 2013

Pound_Rallies_as_PMI_Shows_Little_Contraction_in_Manufacturing_Activity____body_gbpusd.png, Pound Rallies as PMI Shows Little Contraction in Manufacturing Activity

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to instructor@dailyfx.com .

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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