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Sterling Erases Losses as PMI for Manufacturing Beats Expectations

Sterling Erases Losses as PMI for Manufacturing Beats Expectations

Benjamin Spier, Technical Strategist

THE TAKEAWAY: UK PMI manufacturing reported at 48.6, beats expectations -> Input prices fall to new lows -> Sterling erases earlier losses

UK manufacturing continued to decline for the second month in a row, according to the Purchasing Managers’ Index for June provided by Markit Economics. The PMI was reported at 48.6, beating analysts’ expectations for 46.5, and rising from May’s index at 45.9, which was the lowest in 3-years. As a quarter, Q2 2012 had the worst PMI for manufacturing, averaging at 48.2, since Q2 of 2009.

However, input prices fell at the fastest pace in three years, therefore easing costs on the manufacturing sector. Incoming new business declined for a third month, although the rate of decline had also lessened since May. Any PMI below 50.0 indicates a decline in the sector.

The Bank of England is widely expected to raise stimulus in their July meeting, as both the minutes from June’s meeting and recent comments by Governor Marvyn King show a growing concern over the effects of the European debt crisis on the UK economy.

Like other risk-correlated assets, cable has been correcting lower in today’s session following Friday’s rally towards 1.5700. The better than expected PMI brought a jump in sterling back towards 1.5700, and the pair is now (09:00 GMT) currently trading around 1.5680.

Sterling_Erases_Losses_as_PMI_for_Manufacturing_Beats_Expectations_body_gbpusd.png, Sterling Erases Losses as PMI for Manufacturing Beats Expectations

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