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Monthly Wrap: GBP – Pound demand limited as signs point towards slowing UK economy

Philip McHugh June 7th 2019 - 2 minute read

Key Takeaways:

  • Underwhelming UK PMIs dent economic outlook
  • Pound remains under pressure thanks to ongoing political uncertainty
  • GBP Monthly lows: €1.12, $1.25, AU$1.81, C$1.69, NZ$1.91
  • GBP Monthly highs: €1.16, $1.30, AU$1.86, C$1.76, NZ$1.98

 
As the UK manufacturing and construction sector both fell into a state of contraction in May the mood towards the pound soured.
 
The fading impact of earlier stockpiling activity saw the manufacturing PMI unexpectedly slump, with ongoing Brexit-based uncertainty looking set to keep the sector in a lower gear.
 
However, as the corresponding services PMI bettered forecasts to deliver a month of modest growth, this put a floor under GBP exchange rates.
 
Although markets remain wary of the prospect of the UK economy losing further momentum over the course of the second quarter, this has not been enough to push the pound lower against its rivals.
 
With a higher level of inflation cutting into domestic wage growth there are concerns that consumer spending could falter in the months ahead.
 
The continued lack of clarity surrounding Brexit and the outcome of the Conservative leadership contest both helped to limit the potential for pound gains, meanwhile.
 
If the odds continue to favour a hard-line Brexiteer as Theresa May’s most likely successor, GBP exchange rates could struggle to find any degree of sustained support.
 
As uncertainty over the UK’s future relationship with the EU has already shown signs of weighing on economic activity a persistent lack of progress on Brexit may diminish investor confidence further.
 
However, an uptick in April’s average earnings data could offer GBP exchange rate a rallying point.
 
Evidence that wage growth picked back up at the start of the second quarter would reduce some of the recent pressure on household finances, even if the inflation rate continues to exceed the Bank of England’s (BoE) 2% target.
 
Focus will also fall on April’s UK gross domestic product next week, with forecasts pointing towards a slight uptick in growth on the month.
 
As long as the economy demonstrates signs of resilience in the face of ongoing political anxiety the appeal of the pound looks set to improve.
 
However, another month of lacklustre growth, or even contraction, could see GBP exchange rates trending lower across the board once again.
 

Written by
Philip McHugh

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