Sterling continues downtrend on weak manufacturing data
Friday 2 September, 2022
Daily Currency UpdateAugust saw the UK manufacturing sector suffer its steepest downturn since the first pandemic lockdown. Output and new orders contracted at the fastest rates since May 2020, as inflows of work from both domestic and export markets slumped sharply lower. There were reports of clients postponing, rescheduling, or cancelling agreements due to increased economic uncertainties, recession warnings, rising prices and component shortages, while port congestion and Brexit complications constrained export opportunities. This did little to support a dwindling pound, which continues its fall particularly versus the US dollar.
The UK leadership race is entering its final days with the new Prime Minister to be announced by Monday. Voting closes later today with Liz Truss the favourite to succeed over Rishi Sunak. The impact on the pound is yet to be understood, but expectations that Truss may trigger Article 16 of the Northern Ireland protocol bring uncertainty to the pound and the future of the current Brexit agreement.
Key MoversThe Eurozone also saw a multi month low print of their manufacturing PMI yesterday. New orders declined sharply for the sector, and manufacturers have also cut their buying activity back further in response to the darkening economic outlook. The bright spot is that inflation appears to have peaked out in the Eurozone and could now be on its way down. This brings respite for the euro, which has much like the pound, been on a losing streak versus the US dollar.
The US shows signs of a more robust economy, with manufacturing data surprising to the upside yesterday. August ISM manufacturing data reported a better than expected 52.8, with new orders particularly reporting much stronger than expected readings. The market was focusing on this headline figure, taking the US dollar to new highs versus a basket of currencies.
- GBP/USD: 1.1510 - 1.1605 ▼
- GBP/EUR: 1.1540 - 1.1615 ▼
- GBP/AUD: 1.6825 - 1.7110 ▼
- EUR/USD: 0.9910 - 1.0040 ▼