The bad news keeps on pouring in for the pound. Sterling dropped 0.4% versus the dollar in the previous session after manufacturing activity contracted at the fastest pace in two years.
Today the pound has dropped a further 0.2% versus the dollar and the euro as the construction sector suffered its worst month in 10 years. Construction PMI dropped to 43.1, well below the increase to 49.2 forecast, in the clearest sign yet that Brexit uncertainty is putting companies off long term investment.
Data is pointing to a slowdown in the UK economy across the second quarter and with Brexit uncertainty set to last for several months more, at the least, the outlook for the UK economy and the pound remains weak.
Whilst data is stacking up against the pound, so are domestic political developments. Yesterday MP’s failed in their latest bid to stop a no deal Brexit whilst Boris Johnson’s hawkish approach to Brexit also unnerved pound traders. With both Tory leadership candidates willing to accept a no deal Brexit, the prospects for the pound are not great.
Attention will swing towards the PMI for the UK’s dominant service sector which is due for release tomorrow. Expectations are for the service sector to remain steady at 51 in June. However, when the manufacturing PMI and the construction PMI miss expectations, it isn’t uncommon for the service sector PMI to underwhelm.
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