Weak UK Factory Growth Hits the Pound
Sterling dropped back below $1.30, affected by news regarding the slowdown of the factory growth in the UK. The UK’s Manufacturing PMI data for June, released by IHS Markit, came below expectations in stark contrast to Eurozone’s PMI data. Britain’s manufacturing growth dropped to a three-month low in June with experts suggesting that the figures showed a drop in manufacturers’ confidence due to the parliamentary elections and the ongoing uncertainty about the Brexit negotiations with the European Union.
Markit’s Eurozone manufacturing PMI data for June were published today, beating City forecasts. The figures showed that the Eurozone’s factory sector is growing at its fastest rate in the last six years. Every Eurozone country reported an acceleration in factory growth, with Germany, Austria and the Netherlands being the leaders. Greece also joined the club after one year of declining numbers.
Pound Sterling – UK Markets
Today, Sterling slumped against the US Dollar, losing 0.4% in value and trading at $1.29. The British Pound retained its value against the Euro with the exchange rate set at €1.13. The British currency struggled on news regarding the expansion of the factory sector in the UK.
Markit’s Manufacturing PMI data for the UK showed that the country’s factory growth slowed in June, coming far below City expectations. The figures disappointed investors and traders, reducing hopes that the British economy could be bouncing back. Firm owners said that production and orders grew in June, but slower than in May. They stressed that the demand for exporting UK goods abroad has slowed, although it was expected that the weak Pound would boost this specific sector.
IHS Markit’s senior economist, Rob Dobson, noted that the slowdown was centred on the domestic market. He said that “increased business uncertainty has led to some delays in placing new contracts. Growth is down sharply from April’s near three-year high.” The British Pound dropped by half a cent, dipping below the $1.30 mark, which was recorded in last Friday.
US Dollar – US Markets
The US Dollar surged to the Euro, trading at €0.87. A modest pick-up in demand for the US currency forced the key US Dollar Index (DXY) to extend Friday’s recovery move from the lowest level recorded in the last nine months. DXY is an index that measures the value of the US Dollar against six major rival currencies.
The US Labour survey, including Non-Farm payrolls (NFPs) is the main release that may affect the US currency in the week ahead, which included the 4th July holiday. The consensus forecast is for a significant rise in payrolls in June and a rise in the Average Hourly Earnings, which is an important figure for the Fed as it is considered a lead on inflation.
Oil prices rose on news that the US drilling activity declined for the first time since last January. Despite the drop in activity, the active oil rig number in the US is still more than double than a year ago. Oil market experts said that this was the first crack in the resolve of the US shale oil companies to continue to ramp up production, regardless of the big fall in price.
Euro – European Markets
The Euro slumped against the US Dollar, losing 0.25% in value and trading below the $1.14 mark. Markit published its June Manufacturing PMI data for each Eurozone country and the Eurozone in total.
The Eurozone’s PMI came above expectations as it also happened with Germany’s, indicating that the single market currency area is recovering from the financial crisis that hit it in the last years. The Spanish, Italian and French Manufacturing PMIs came a bit below expectations, but they were still regarded positive by economists. Greece impressed with its factory sector returning to growth for the first time since last summer.
In Italy, a sharp increase in output and orders for export was noted. Germany’s manufacturing performance was seen as “impressive” by Trevor Balchin, a senior economist at IHS Markit. The expansion of the factory sector in the EU was broad-based, as every country reported faster factory growth in June. PMIs are based on interviews with thousands of factory owners across Europe.
Other Currencies – Highlights
Sterling strengthened against the Australian Dollar, trading at 1.69 AUD. The Aussie dropped on news that dwelling approvals in Australia fell by 5.6% in May. The fall was much worse than the market’s expectations of a 1.3% decline. As Westpac’s analysts note, this is the second lowest monthly reading on high rise approvals since June 2013. The first quarter’s building activity data, due next week, is going to give a more updated view of the sector.
The Pound recovered some of its previous days’ losses against the New Zealand Dollar, trading at 1.77 NZD. According to an Ipsos poll, taken in May 2017, 64% of the citizens agreed that the country’s economy was rigged to advantage the rich. As the country heads to the polls in September, political scientist Bryce Edwards said that “until now, it has looked like New Zealand has been immune from the world-wide increase in radical politics and rebellion against the establishment. This poll shows that such political upheavals could yet come to New Zealand.”