Post manufacturing PMI data, the pound pared early losses which saw it drop to a three-week low versus the dollar.
UK manufacturing pmi beat analysts’ expectations unexpectedly increasing to 48.1 in September up from 47.4 the previous month. Whilst manufacturing out has lifted from the 7 year low struck in August to a 4-month high and celebratory lift in the pound could be short lived.
Delving deeper into the figures, the news orders and the employment components of the data painted a grim picture, with a recession in the manufacturing sector now looking highly likely.
With Brexit just one month away, the sector benefited from some firms building inventories. However, the vast majority of European customers are eliminating their reliance on UK manufacturing an rerouting their supply chains away from the UK. With no Brexit deal in sight, UK manufacturing sector could be faced with a more challenging climate before any signs of improvement.
Pound traders will turn their attention back to Brexit, with Boris Johnson expected to submit formal proposals to for an alternative to the Irish backstop on Wednesday. Any sign of acceptance from the EU could propel the pound back towards US$1.25.
Dollar traders eye manufacturing data
On the other side of the equation, the dollar stands solid. Whilst recent US data hasn’t been outstanding, it hasn’t been bad either. In short, the US economy has remained resilient amid the ongoing US – Sino trade war. The fact that the Fed are in no rush to cut rates, which central banks across the globe ease policy is also supporting the buck.
Attention now turns to US manufacturing data, which is expected to show that the sector rebounded in September, back into expansion after slipping into contraction in August. A strong reading could lift the dollar higher and pull cable back below $1.23
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