Pound Slides on Weak PMI Data

It’s been a mixed start to trading on Friday, with PMI data from euro area offering some cause for optimism while the numbers coming from the U.K. provided a much more pessimistic outlook for the manufacturing and services sectors.

The pound has come under some pressure on the back of those PMI figures, down around half of one percent against the dollar on the day and trading just above 1.31. A break through this level could see the pair test the lows following the Brexit vote, just below 1.28 earlier this month.

GBPUSD Daily

Source – OANDA fxTrade Platform

It wasn’t exactly a big surprise to see confidence in both sectors take a hit following the surprise Brexit vote but what was a concern was the size of the hit to the services sector, the main engine of growth for the U.K. economy. Both PMI readings fell into contraction territory, which was expected, but services fell heavily, back to 47.4 from 52.3 in June, which doesn’t bode well for the economic outlook in the coming quarters. If we continue to see these kinds of figures in the coming months, the economy could be headed for recession before the year is out.

USDJPY and JPY Crosses. Storm Clouds Gathering….

The eurozone figures offered a little more reason for optimism, falling slightly from June but not very much and in fact, the numbers coming from France actually improved slightly. It’s worth noting that these numbers can be quite volatile and therefore in isolation don’t necessarily offer an accurate insight into the outlook but if they are a sign of things to come then the region may be more resilient to Brexit than was thought.

The U.S. session is looking a little quieter, with the focus once again falling on earnings season as another ten S&P 500 companies report on the second quarter, including American Airlines and General Electric. We’ll also get the latest manufacturing PMI data from the U.S. which is expected to rise slightly to 51.6 and the Baker Hughes U.S. oil rig count. The number of oil rigs in the U.S. has been creeping higher in the background since the end of May which could lead to a pickup in output after more than a year of declines.

US Crude Output

Source – EIA Weekly U.S. Field Production of Crude Oil Data

Baker Hughes US Oil Rig Count

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.