British pound plays down weaker manufacturing PMI

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·         UK PMI for manufacturing slips in January remaining well above its long-term average though 

·         An unwelcome mix could raise some questions as for the future of the sector

·         GBP remains unfazed, more gains might be expected as PMI makes just a tiny dent

 

The first out of three PMI readings from the UK economy was released earlier today and showed deceleration from 56.2 (revised down from 56.3) to 55.3 whereas economists surveyed by Bloomberg had anticipated a subtle jump to 56.5. Either way, do remember that the manufacturing sector makes up approximately 10% of the British economy so an impact on the domestic assets might be contained. As a result, the pound downplayed the reading being the second best currency in the G10 basket at the time of writing (just behind the Norwegian krone).

UK manufacturing PMI bodes a possible slowdown in the sector which, however, is not so relevant in general.

 

The report stressed "an unwelcome combination of slower growth and rising prices at the start of 2018", hence "the trend in demand will need to strengthen in the near-term to prevent further growth momentum being lost". The survey showed also an increase in foreign demand as sales grew to destinations such as North America, China, the Middle East, Japan and mainland Europe. It reflects a widespread improvement in economic activity all around the world. All in all, the today’s data does not change too much for the GBP which might continue increasing against the greenback in the upcoming days. Nevertheless, one cannot forget about the next week BoE meeting being a possible source of risks. The OIS-implied likelihood suggests that a hike is fully priced in until November, hence a possible pullback cannot be ruled out as the latest move appears to be steered mainly by US dollar weakness. Let’s also add that readings for construction and services will be released tomorrow and the next week respectively.

 

The GBPUSD seems to be on route to higher levels but the next week Bank of England meeting could spoil moods a bit. The pair drew a bullish engulfing just at an upper boundary of a broken channel which might be seen as a strong buying signal. The closest target might be set at 1.46 being also underpinned by a 50% retracement of the whole move from mid-2014.