GBP Outlook: UK Manufacturing PMI Beat Provides Ammo for BoE Hawks
GBPUSD Analysis and News
- UK Manufacturing PMI beats expectations, providing a boost for BoE hawks.
- Initial Sterling gains short-lived amid the risk averse environment
Check out our new Fundamental and Technical Q3 forecast guide for GBPUSD
UK Manufacturing Output Remains Subdued
UK Manufacturing PMI remained subdued at the end of the quarter, showing a rise of 54.4 in June, above expectations of 54. However, there had been a slight revision to 54.3 from 54.4 for the prior months reading. In reaction to the report, GBPUSD saw a 10-pip uptick, although the initial gains had been short lived with the pair back at pre-announced levels. IHS Markit stated that output growth had slowed from the five months high reached in May, while input cot inflation picked up, leading to increased selling prices, which in turn saw optimism falling to its lowest level this year.
Bank of England Rate Outlook
The better than expected Manufacturing PMI will provide additional ammo for the hawkish members on the committee. As it stands, OIS markets are pricing in a 60 probability of an August rate hike, while 22bps worth of tightening is priced in by November. The increased likelihood had stemmed from the most recent monetary policy decision in which BoE Chief Economist dissented and called for a 25bps rate hike, providing a 6-3 vote split. Over the weekend, BoE Deputy Governor Jon Cunliffe had warned that escalating trade wars, strains in emerging markets and a rising possibility of a Chinese credit crisis could provide a painful experience for the UK economy. As a reminder, Cunliffe is one of the more dovish members.
Source: DailyFX (Bank of England Hawk/Dove Scale)
GBPUSD PRICE CHART: 1-MINUTE TIME FRAME (INTRADAY July 2, 2018)
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--- Written by Justin McQueen, Market Analyst
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