The pound slumped to a 3 week low against the euro and fell against all 16 of the most actively traded currencies after UK manufacturing data came in much weaker than expected. Output in the sector fell to a 20-month low last month according to data from a Markit/Chartered Institute of Purchasing Supply (CIPS) survey. The data underlined the ‘stickiness’ of the UK economic recovery and the prospect that the Bank of England will not increase UK interest rates for an extended period.
Markit/CIPS said that production and new orders fell slightly for the first time since mid-2009. The consumer goods sector and smaller-scale manufacturers were hit the hardest, it said. “The UK PMI suggests that manufacturing has moved from rapid expansion to near-stagnation,” said Markit senior economist Rob Dobson.
In a note published Wednesday morning covering consumer credit and money supply, analysts at Barclays pointed out that, “Credit data for April showed no sign of a let-up in the weak lending outlook”. While it is true that at £500 million, net consumer credit growth came in a little higher than expectations for a gain of £200 million it nevertheless did come in flat with respect to March’s revised out-turn. Mortgage approvals, on the other hand, fell to 45,200 versus the 47,000 expected. All in all, Barclays is of the opinion that, “Net consumer credit has now recovered somewhat from the lows of 2009 and 2010 (when net credit averaged less than £100 million), although it remains at barely a quarter of the level recorded during 2002-04 and seems unlikely to recover significantly as long as the consumer outlook remains weak”.
The US dollar was also under pressure after another batch of uninspiring US economic data. The dollar touched a one-month low against a basket of major currencies after a gloomy jobs report and weaker than expected manufacturing numbers sparked concern that the US economic recovery is patchier than previously thought. The dollar index, which measures the US currency against a basket of other units, fell to a one month low of 74.306.
A measure of risk appetite in the equity and commodity markets also helped the high yielding currencies like the Australian and New Zealand dollars and South African Rand all make gains but the Canadian dollar fell on weakening oil prices.
Commentary by Tony Redondo
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