Sterling fails to hold onto gains from UK manufacturing PMI – 4th January 2017

 

Sterling fails to hold onto gains from UK manufacturing PMI – 4th January 2017

It was a positive start to 2017 as share prices went higher and economic data around the world painted a generally positive picture. On the currency markets, any movement was modest with the US and Australian Dollars tied for the lead and Sterling unchanged.

The main data was the manufacturing sector purchasing manager index (PMI) and in most cases it did not disappoint. Switzerland’s PMI was half a point lower on the month but still looked healthy at 56.0 while in Canada, it was up by a quarter of a point at 51.8. The two US manufacturing PMIs were both higher; one by a tick at 54.3 and the other – the more closely-followed ISM figure – was a point and a half higher at 54.7.

The real surprise was from the UK which came in at 56.1 which was two and a half points better than forecast, but also a two-and-a-half-year high. It was not the sort of surprise to which investors are accustomed and they felt obliged to buy Sterling, though that sentiment lasted until the resignation of Ivan Rogers.

To those that don’t know Mr Rogers, he was the UK’s most senior representative to the EU who will now be leaving his post before the Government invokes the Article 50 process of leaving the EU. The inference is that his replacement will be more inclined to negotiate a “hard” Brexit.

Rightly or wrongly the market consensus is that a “hard” Brexit, a complete break with Europe including departure from the single market, would be more hurtful to the UK economy than a “soft” Brexit, which would leave the country in roughly the same situation as Switzerland and Norway. The harder it promises to be, the harder investors are on Sterling.

So what could have been a good day for Sterling turned into a merely average one as it added a third of a Euro cent and lost half a US cent. On average it was unchanged against the other dozen most actively-traded currencies.

There are some more PMIs and a couple of inflation figures today and this evening the Federal Open Market Committee releases the minutes of last month’s meeting. In most cases the PMIs today will relate to the services sector. There are numbers this morning from Spain, France, Germany and the EU and the Australian and Chinese versions come out tonight. Britain’s contributions will be the services sector PMI and the Bank of England’s money supply data, including the aggregate mortgage approvals figure. The FOMC minutes will appear at seven o’clock this evening.