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Pound (GBP) Rally Limited Following Underwhelming UK Manufacturing Report

Published: 1 Feb at 5 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, Germany, Italy,

Pound Sterling (GBP)
UK political jitters eased slightly on Thursday and markets became more focused on next week’s highly anticipated Bank of England (BoE) policy decision, making the Pound more appealing to investors despite mixed UK ecostats in recent sessions.

Thursday’s most notable news was the publication of Britain’s January manufacturing PMI from Markit, which came in at 55.3 rather than rising to the forecast 56.5. However, as the report also indicated that UK exports were rising Sterling still saw decent performance throughout the day.

While Sterling’s strength has been limited by mixed data and domestic political uncertainties, Pound investors are becoming increasingly excited for the Bank of England’s February policy decision next week, especially since BoE Governor Carney recently indicated that the bank would be refocusing on tackling UK inflation.

Euro (EUR)
The Pound to Euro exchange rate briefly touched on its best levels in a week on Thursday morning, but due to disappointing UK manufacturing and the persistently strong Eurozone economic outlook the pair trended lower towards the end of the European session.

Markit’s final January manufacturing PMIs indicated that the Eurozone’s manufacturing boom was looking to continue in 2018 and left investors optimistic that strong manufacturing trends could last for some time to come. German manufacturing fell slightly short of projections but still reached an impressive 61.1, while the bloc’s overall manufacturing PMI printed at 59.6 as projected.

Italian inflation stats will be published on Friday, while services and retail stats will be published on Monday, but overall the Pound is likely to drive GBP/EUR movement in the next week.

US Dollar (USD)
The Pound to US Dollar exchange rate neared its best levels in a week on Thursday but struggled to hold its best levels as UK manufacturing data fell short of expectations.

On top of that, the latest US data impressed investors and helped the recently weak US Dollar to limit its losses.

ISM’s key US manufacturing PMI for January was forecast to slide from 59.7 to 58.8, but instead only slid to 59.1. The previous figure was revised lower however, to 59.3.

The US Dollar’s strength is still limited though, it’s likely that investors are awaiting key US Non-Farm Payroll data, due during Friday’s American session, before making any big moves on the US currency.

Australian Dollar (AUD)
Risk-off sentiment and recent underwhelming Australian data made it easy for the Pound to Australian Dollar exchange rate to surge on Thursday. While the pair was unable to hold its best levels since December – seen this morning – it still gained over half a cent throughout the day overall.

Demand for risk-correlated currencies like the Australian Dollar was dented on Wednesday evening as the Federal Reserve predicted that US inflation would become stronger this year, leading to a rise in Fed rate hike bets. The Australian Dollar was also pressured by a disappointing Australian building permits report from December.

Next week will be a big week for Australian Dollar investors, as the Reserve Bank of Australia (RBA) will hold its February policy decision on Thursday.

New Zealand Dollar (NZD)
Despite low market appetite for risk-correlated currencies like the New Zealand Dollar, the Pound to New Zealand Dollar exchange rate was unable to hold above the week’s opening levels until the end of Thursday’s European session.

The New Zealand Dollar has recently been supported by strong domestic trade data and could see additional support if upcoming confidence data and building permits impress investors.

Major New Zealand data due next week is likely to influence GBP/NZD movement too. Job market data will be published during Wednesday’s Asian session, followed by the Reserve Bank of New Zealand’s (RBNZ) February policy decision on Thursday.

Canadian Dollar (CAD)
The Pound to Canadian Dollar exchange rate advanced on Thursday, but it was unable to hold its best levels due to market disappointment in Britain’s latest manufacturing stats.

The Canadian Dollar has been little impacted by Canadian data in recent sessions, as Wednesday’s Canadian growth report from November met expectations and rose from 0.0% to 0.4%. Instead, CAD has been weakened by low demand for risk-correlated currencies.

Next week’s Canadian economic calendar will be a little busier. Trade data will be published on Tuesday, with January job market data due to come in on Friday.
As of Thursday, 1st February 2018, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1404, GBP USD exchange rate was 1.4264, GBP AUD exchange rate was 1.7745, GBP NZD exchange rate was 1.9277, and GBP CAD exchange rate was 1.7488.
Dominic Lee About Author: (474 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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