Euro Slightly Higher, British Pound Tumbles After Post-Brexit PMIs
- UK’s Economy contracts at the steepest pace since 2009
- Euro-Zone’s economy showed surprising resilience in the face of the EU vote
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The Euro traded slightly higher versus the US Dollar, while the British Pound tumbled as Markit’s first post-Brexit PMIs hit the wires.
The Eurozone PMI Composite Index came at 52.9, above the expected 52.5 print, but slightly lower than the prior 53.1 figure, which marked an 18-month low.
The Services PMI Activity Index was slightly lower at 52.7 from the prior 52.8 reading, but was above the expected 52.3 print. Manufacturing PMI declined to 51.9, below the prior 52.8 print and the expected 52.0 figure.
The Euro-Zone reading came after earlier today the German and France Markit PMI figures exceeded expectations in all the components, with Germany’s service print showing an impressive rise to 54.6 from the prior 53.7.
A reading of less than 50 indicates a contraction of activity, above 50 points to an expansion, and an index of50 says that no change has occurred.
Looking into the report, Markit remarked that business activity growth edged lower in July, but the overall pace of growth remained only slightly slower than average, while employment rose at the fastest rate for almost five-and-a-half years.
Markit remarked that the Euro-Zone’s economy showed surprising resilience in the face of the UK’s vote to leave the EU and that firms’ willingness to hire was so far unaffected by the Brexit vote.
With that said, business confidence about the outlook in the service sector has deteriorated primarily due to the political and economic instability induced by Brexit.
EURUSD 5-Minute Chart: July 22, 2016
Markit/CIPS Flash PMI signaled the UK’s Economy contracted at the steepest pace since 2009.
The manufacturing diffusion index fell to a seasonally adjusted 49.1 from the prior reading of 52.1, which was above economists’ expectations of a 47.5 print.
The Services PMI printed an 88-month low at 47.4, below the expected 48.7 and the prior 52.3 print. As such, the composite Output Index fell to an 87-month low at 47.7, below the expected 48.5 figure and the prior 52.4 print.
Looking into the report, Markit said output and new orders fell in both the manufacturing and service sectors during July, with a number of firms indicating the Brexit uncertainty as the cause.The reports were especially prevalent among service providers, Markit said.
Markit commented that the downturn was most commonly attributed in one way or another to ‘Brexit’. One positive was that manufacturing export growth improved on the backdrop of the weaker Sterling.
Perhaps most interestingly, Markit remarked that at this level, the survey is signalling a 0.4% contraction of the economy in Q3, and that the PMIs could be used by policy makers for a signal to take “swift action”.
GBPUSD 5-Minute Chart: July 22, 2016
The DailyFX Speculative Sentiment Index (SSI) is showing that traders might be trying to fade both the move in GBP/USD and the EUR/USD, adding to longs and shorts respectively. The SSI is mainly used as a contrarian indicator.
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--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail firstname.lastname@example.org