HomeContributorsFundamental AnalysisPound Slips as British Manufacturing PMI Disappoints

Pound Slips as British Manufacturing PMI Disappoints

The British pound has recorded considerable losses in the Monday session. In North American trade, GBP/USD is trading at 1.3267, down 0.97% on the day. On the release front, British Manufacturing PMI slowed to 55.9, but still fell short of the forecast of 56.3 points. There was better news in the US, as ISM Manufacturing PMI accelerated to 60.8, beating the forecast of 57.9. This was the indicator’s highest level since April 2011. On Tuesday, the UK releases Construction PMI, which is expected at 51.2 points. As well, the BoE will release the minutes of the quarterly Financial Policy Committee meeting.

With investors keeping a nervous glance on the slow pace of the Brexit negotiations, any key British indicators which fall short of expectations could send the pound sharply lower. This was the case on Monday, as British Manufacturing PMI softened and missed the forecast. Although the reading of 55.9 indicates respectable expansion in the manufacturing sector, perception is key in the markets, and negative sentiment about the British economy could spell trouble for the pound.

Prime Minister Theresa May is putting on a brave face, and said in a weekend BBC interview that the Conservative party is united behind her leadership. However, there are reports that May is facing increasing unrest in the party, and could be gone as leader within 12 months. The Conservatives are gathered this week in Manchester for a party gathering. May has been widely blamed for the Conservative’s poor showing in the June election, and has failed to present a consistent line in the Brexit negotiations with the European Union. The Brexit talks have been tortuous until now, with little progress to report after several rounds of negotiations. Key sticking points include the amount that Britain will pay upon leaving, whether the European High Court will have jurisdiction over EU citizens living in Britain, and the border with Ireland.

The US dollar continues to gain ground against the pound, as GBP/USD has dropped to its lowest level since September 14th. Trump has all but given up on his health care proposal, as the plan lacks enough support from Republican lawmakers. Next on the Trump Express is tax reform, which was a key campaign plank. Last week, Trump proposed a major overhaul of the US tax code, which includes reducing the corporate tax rate from 35 percent to 20 percent, as well as a 25 percent tax rate for small businesses, such as partnerships. Like other Trump proposals, the tax plan was sketchy on details, including how the tax plan would be paid for. With Democrats and some Republicans wary of Trump’s tax agenda, it’s likely his that tax reform proposal will face a stiff battle in Congress. Still, the markets like the idea of lower taxes, and the US dollar posted back-to-back weekly gains.

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