The UK economy begins the year on a high with the FTSE 100 breaking through 7,200 for the first time in history, but the highlight of the trading session came at 09:30 in the form of Manufacturing PMI.
The reading of 56.1 marks a 2-year high for the UK’s manufacturing sector, and despite the outstanding Brexit set to unravel in March, a weaker Pound is cushioning the economy by re-balancing the UK’s import/export ratio.
Pound to Euro exchange rates have recouped some of their pre-Christmas losses, with the pair now trading at 1.18 on the exchange, but with German Consumer Price figures released just after noon, the pair may begin to tip in favour of the Euro in the latter part of the day.
With a host of PMI releases throughout the remainder of the week, there remains opportunities for the Pound to make further headway. In light of the weaker Pound, UK manufacturing and construction boasts resilience to the vote in June and has, for the most part, continued to outperform expectations. Philip Hammond during his Autumn statement, laid out plans to boost the UK’s housing market by increasing the number of new builds. With this in mind tomorrow’s construction PMI could once again beat expectations lending further support in the Pound’s favour.
Supreme Court hearing and Article 50
While the UK economy maintains to some degree, a resilience to the Brexit vote, sentiment around the Pound may bear negative as we approach the deadline for Article 50. It is not expected that Theresa May will win the appeal to Trigger Article 50 alone, but investors in light of a difficult year are not likely to take chances, when they could move funds into a stable and strengthening US Dollar. Pound to US Dollar exchange rates have not budged on the positive UK data this morning, with current trends pointing to a weakening of the currency pair.
One of the biggest calamities for Sterling exchange rates has little to do with the vote in June, but more so the lack of clear direction from the Tory Government. Brexit means as much now as it did in June, with each passing day adding further tension and uncertainty, and thus a dampening appetite for GBP.
May plans to reveal her Brexit cards in the weeks ahead, but its unclear as to what these plans entail or whether Parliament will agree to any of the terms laid out. It has previously been suggested that Government are more in favour of a hard Brexit which could have bigger implications for the UK economy and Pound Sterling. The uncertainty that surrounds the Pound could be set to intensify which in my view, points to a weakening of the Pound in the coming weeks.