A drop in the most recent industry survey from the UK has done little to aid the pound this morning with the GBP/USD rate falling further to trade at its lowest level in over a week, just above the $1.28 handle. However, it should be noted that this appears to be more a case of strength in the buck and a look at other GBP pairs reveals that the pound is actually little changed on the day overall. It’s a similar story in the stock market where the FTSE 100 is back near yesterday’s closing level just above 7500, after an early foray higher ran into some resistance.
Construction slows alongside manufacturing
Monday saw the leading index survey on the UK’s manufacturing sector fall to its lowest level in over 2 years and this morning there’s been more disappointment with the construction PMI also declining by more than forecast. The drop here isn’t quite as much of a negative shock for the pound due to both the fact that the release is still better than all but two of the monthly publications so far in 2018 and also the currency’s lower sensitivity to it as a data point. One of the main contributors to the softness was a fall in input prices which fell to their lowest reading since July 2016 at 62.8.
This afternoon’s inflation report hearings could well provide some clarity for the pound as Governor Carney and fellow BoE rate-setters will face questions after hiking the base rate last month. Tomorrow morning sees the most important of the 3 PMI surveys released, with the services report due at 9:30. Both these events could drive the pound in the near-term but Brexit developments remain a potentially bigger source of movement and the bigger picture remains heavily dependent on their progress or lack of.
Politics dominates the newswires
Brexit talk is very much in the headlines at present after politicians return from their summer recess, but while there is much bluster coming from both Westminster and Brussels in the past couple of days, there remains no real tangible developments as far as the markets are concerned. Both positive and negative remarks from the lead EU Brexit negotiator, Michel Barnier, have caused volatility in the pound in recent sessions but none of the comments strayed far from the official line and as such have failed to have a lasting impact.
Reports this morning that Barnier will only agree to a Free Trade Agreement, called Canada Plus, instead of a version of the plan laid out at Chequer’s by PM May could weigh on the pound a little with this suggestion further along the spectrum to a hard Brexit. A Reuters survey of economists has shown on average a 25% chance of no deal being reached and if this is taken as a fair representation of the market’s view it means we will likely see some heightened volatility in the pound in the coming weeks and months as the prospects for a hard Brexit wax and wane leading up to the deadline.
