Sterling Outlook Remains Uncertain after Unusual Day of Movement

July 26, 2016 - Written by Toni Johnson

STORY LINK Sterling Outlook Remains Uncertain after Unusual Day of Movement

The Pound slumped earlier on dovish BoE comments ahead of next week's interest rate decision. Since then, it has bounced back and bobbed in various pairings.

Brexit Decision Weighs on UK Economic Outlook, Pound to Euro, US Dollar Exchange Rates Struggle

Dark clouds are gathering over the UK economy. Hard statistics are now beginning to confirm that last month’s decision by British voters to exit the European Union is beginning to have a pronounced effect on UK economic activity.

The Chartered Institute of Procurement and Supply (CIPS), which issues monthly Purchasing Manager Index surveys of various sectors of the UK economy, announced last Wednesday that it would be publishing a, ‘Flash UK PMI’ survey which, ‘will follow the same principles as Markit’s Flash PMIs for the Eurozone, Germany and France.’

UK Manufacturing, Construction Sectors Enter Contraction, Forecast for British Pound Bleak

CIPs went on to assert that the survey would be, ‘based on more than 70% of usual replies to the regular UK monthly PMI surveys, the flash release will contain survey indices relating to manufacturing and services as well as a set of weighted-composite indices reflecting economic trends across the two sectors combined.’ CIPS whetted the appetite of market watchers by suggesting midweek that today’s suite of surveys would, ‘help provide clarity on the potential impact of the UK’s EU referendum on the economy, and is in response to demand from data users.’

The release certainly fulfilled that brief, with the Composite version of the survey, published last Friday and covering all sectors of the British economy, printing at 47.7 - its lowest level since April 2009. The accompanying report from Markit / CIPS described the ‘dramatic deterioration’ in British economic activity in the wake of the Brexit vote.

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Chris Williamson, Chief Economist at Markit, which compiles the survey, expanded on this theme, noting that,

‘July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early-2009.’

He went on to attribute the blame for this, stating that,
‘The downturn, whether manifesting itself in order book cancellations, a lack of new orders or the postponement or halting of projects, was most commonly attributed in one way or another to ‘Brexit’.’

The Pound to euro exchange rate slumped into the 1.1800s as the week drew to a close, following the data release, having traded above the 1.2000 GBP EUR threshold early on Friday. The outlook for Sterling remains firmly negative.

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TAGS: Currency Predictions Daily Currency Updates Euro Forecasts