Pound’s post-election bounce curtailed by disappointing UK PMIs

Philip McHugh December 17th 2019 - 2 minute read

The pound was left mostly rangebound yesterday, with release of some underwhelming UK PMI figures putting the kibosh on an initial rally.

Sterling remains muted this morning, with GBP/EUR dipping to €1.1898, GBP/USD subdued at $1.3257, and GBP/CAD flat at C$1.7463. GBP/AUD and GBP/NZD are holding steady at AU$1.9337 and NZ$2.0120 respectively.

Looking ahead, the publication of the UK’s latest employment report could keep the pressure on GBP exchange rates this morning as economists predict another drop in wage growth.

What’s been happening?

The pound initially got off to a strong start this week, jumping out of the gate as it was buoyed by diminished no-deal Brexit fears and hopes for some political stability following Boris Johnson’s decisive election win last Thursday.

However Sterling quickly found itself having to walk back these gains following the publication of the UK’s latest PMI figures.

These indicated growth in the private sector slumped to a new three-year low in December, sparking fears the UK economy as a whole could face contraction in the fourth quarter.

GBP exchange rates then weakened further overnight amid renewed Brexit concerns on reports Boris Johnson will pass a bill ruling out an extension to the transition period.

The publication of the Eurozone’s own PMI figures also proved the main catalyst of movement for the euro yesterday, with a disappointing manufacturing PMI capping any upside in the single currency.

Meanwhile, a prevailing selling bias sent the US dollar lower on Monday.

This came partly on the back of a weaker-than-expected Empire State Manufacturing index, but appeared mostly driven by Friday’s announcement of a US-China trade deal.

What’s coming up?

On the docket today we have the publication of the UK’s employment report.

This may keep a cap on the pound as economists forecast that the data will show the unemployment rate ticked up to 3.9% in October.

However the accompanying earnings figures could prove to be the main drag on Sterling today as wage growth is forecast to drop to just 3.4% over the same period.

Across the pond, the publication of the latest US industrial production figures could help the US dollar recoup some ground this afternoon on the expectation that factory output will have rebounded in November.

The euro may struggle to find momentum today in the absence of any notable Eurozone data. Markets will look to a speech by European Central Bank President Christine Lagarde on Wednesday for guidance.

Written by
Philip McHugh

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