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British Pound Lower as Manufacturing PMI Report Fails to Surprise

British Pound Lower as Manufacturing PMI Report Fails to Surprise

Oded Shimoni, Junior Currency Analyst


Talking Points:

- UK’s Markit/CIPS Manufacturing PMI at 52.9, above the 51.6 expected

- Firms signal EUR/GBP exchange rate as an issue

- British pound trading slightly lower after the figures hit the wires

Find Key Turning Points for the British Pound with DailyFX SSI

The British Pound traded lower versus other major currencies (at the time this report was written) after today’s Markit/CIPS Manufacturing PMI showed manufacturing growth accelerated at the start of 2016. The manufacturing diffusion index, by Markit Economics, rose to 52.9 from December’s revised reading of 52.1. The number was above economists’ expectations of 51.6, and marked a three-months high. A number above 50 points to an expansion, below 50 to a contraction.

Looking into the report, Markit remarked that manufacturing production increased due to improved inflows of new work from the domestic market. With that being said, new export orders fell back into decline. Interestingly, Markit remarked that a few firms signaled the EUR/GBP exchange rate for the lower overseas sales. Following the last report, when Markit remarked that weak price pressures elsewhere in the economy may push potential rate increase later into 2016, the latest report fell generally in line with these past comments. Markit said today that strong competition on the sales side combined with the weakness of global commodity prices meant that manufacturers saw selling prices fall in January. Furthermore, Markit commented that weaker growth, rising global headwinds and a lack of inflationary pressure may cause the BoE to push a rate hike even beyond 2016.

The BoE said recently that the latest declines in oil prices meant that the expected increase in inflation is set to be more gradual than forecasted in the Committee’s November Inflation Report projections. BoE Governor Mark Carney recently said that the conditions for a rate rise are not in place yet in the UK.

The market has been buying the British Pound coming into the report, perhaps in anticipation of new data that may be against the current deteriorating bets on the possibility of a rate hike by the BoE in 2016. But it seems the market interpreted the report as failing to trigger new BoE tightening bets, and the British Pound traded lower versus other major currencies.

UK's Markit/CIPS Manufacturing PMI.

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