British Pound eases to 1.3450 area following downwardly revised Manufacturing PMI data

GBP/USD eases to the 1.3450 area from seven-week highs just above 1.3500.
The downwardly revised UK S&P Global Manufacturing PMI has added negative pressure on the Pound
Experts at BBH foresee a dovish repricing of BoE's monetary policy weighing on the Pound in the mid-term.

Guillermo Alcala FXStreet

The British Pound (GBP) is trimming previous gains against the US Dollar (USD) on Monday, returning to the mid-range of the 1.3400s down from fresh seven-week highs, above 1.3500 earlier on the day. Weaker-than-expected UK manufacturing data added pressure on the Pound, which rallied at the Asian session opening, amid news of a halt to the hostilities in Iran.

July’s UK S&P Global Manufacturing Purchasing Managers’ Index (PMI) has been revised down to a 51.2 reading in July from preliminary estimates of a 52.8 reading. The final figures highlight a moderate slowdown of the sector’s activity, from the 52.5 reading seen in June.

Hopes of Iran peace talks have lifted market sentiment

The Pound, however, is drawing some support from a moderate risk-off mood as the US and Iran halted hostilities, and US President Donald Trump’s affirmed that a new round of negotiations will begin on Monday.

The US Dollar is also struggling in the aftermath of an exceptional coordinated intervention between the US and Japan to shore up an ailing Japanese Yen. The USD/JPY dropped more than 3.5% on Thursday and Friday, and posted another spike on Monday, triggering speculation of another intervention. These sharp declines have reverberated in most US Dollar cross-rates, weighing the Greenback across the board.

Looking forward, Strategists at Brown Brothers Harriman observe “scope for a downward adjustment to UK (interest) rate expectations which is a headwind for GBP.” They note that “the swaps curve implies 50bps of tightening to 4.35% in the next twelve months,” but see room for that pricing to be revised lower.

Aside from the Bank of England's rate decision, BBH also points out that “the BoE also flagged it may further reduce the pace at which it shrinks its bond holdings,” underscoring a more cautious approach to quantitative tightening.

(This story was corrected on August 3 at 10:04 GMT to correct the GBP/USD quote in the first bullet point to 1.3450 from 21.3450, as previously written.)

Economic Indicator

S&P Global Manufacturing PMI

The Manufacturing Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging business activity in the UK’s manufacturing sector. The data is derived from surveys of senior executives at private-sector companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the Pound Sterling (GBP). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for GBP.

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