Pound Steadies as U.K. Manufacturing Data Offer Short-Term Boost – 2 May, 2017
The pound erased an earlier decline versus the dollar after a gauge of U.K. manufacturing unexpectedly grew in April at the fastest pace in three years.
Markit/CIPS Purchasing Managers Index rose to 57.3 last month, beating the median forecast of 54 in a Bloomberg survey of economists and up from 54.2 in March. That’s above the 50 level dividing expansion from contraction. Tuesday’s data showed that the weaker currency increased competitiveness while the U.K. still enjoys free trade with the European Union single market. The outlook for sterling still remains cloudy, given upcoming Brexit negotiations, analysts said. Britain’s currency weakened for a second day versus the euro.
“It doesn’t really fit with the longer-term pattern, which will suggest that U.K. data will probably apply pressure to the downside,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “My sense is it will have limited impact on the upside for sterling.”
- The pound climbed last month after Prime Minister Theresa May called a snap election, which some in the market thought would mean a smoother U.K. exit from the European Union
- This view suffered a setback after May said a clash with Jean-Claude Juncker, the president of the European Commission, showed Brexit talks will “not be easy.” Fraught negotiations could hurt the pound further, analysts said
- Though the pound has shown resilience “it should also be noted that GBP is not bulletproof,” Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. wrote in a client note before the PMI data
- “While political clarity has been applauded by investors so far this year, it is clear from the past 36 hours of trading that the focus is now moving on to the negotiations over the U.K.’s exit”
- “Given the likely challenges ahead, this suggests that GBP may now find upward progress rather harder than it has so far this year”
- GBP/USD little changed at 1.2886, after rising to 1.2911 after the manufacturing data
- Resistance at 1.2912, daily pivot with support at 1.2839, April 27 low
- EUR/GBP climbs 0.1% to 0.8469. Resistance at 0.8496, April 27 high, support at 0.8442, daily pivot
- May alluded to leaked details of her dinner with Juncker to remind voters that Brexit talks will be tough and she alone is up to the task
- Yield on U.K. 10-year gilts increases 3bps to 1.11%
Source: Bloomberg