GBP recovers recent losses

Hi everyone,

 

A dramatic slide in UK PMI data for May, caused the Pound to drop 1% across the board on Tuesday. The all-important services number was expected to drop from 58.9 to 57, but ended up showing a dismal 51.8. Composite activity had a similar chunky fall (a broader snapshot of the economy) with manufacturing fairing a bit better coming out just below forecast. Such a drastic fall in this data is unprecedented and the readings have certainly darkened the UK's economic outlook. 

 

The report signals a sharp slowdown in business activity and points to a depressing few months ahead. Manufacturers reported the steepest drop in exports for 2-years and raise concerns about squeezed margins and future orders. JP Morgan announced after the release the UK is the "poster child for stagflation" and cut GBP forecasts once again for year-end. They now share a very pessimistic view on Sterling, hinting at £-$1.16 & £-€1.14 mid-market levels. 

 

Since the shock data, Sterling has managed to recover unexpectedly. Rising stock markets have improved investor sentiment and £-$ rates are trading at a 3-week high. Then dovish comments out of the ECB have improved £-€ rates to its recent range-bound territory (1.17-1.18 mid-market). President Lagarde has found support from a number of ECB members that believe September would be the right time for the EU to come out of negative interest rates, rather than July. 

 
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