Barnier and UK manufacturing data weigh on GBP

Barnier hardens position after bespoke deal comments

The UK has been a key focus for traders at the start of the week, with Brexit talks back on the agenda, manufacturing data underwhelming and the US on holiday.

The pound is coming under pressure again on Monday after Michel Barnier dashed hopes that his comments last week in any way meant the EU is going to bend its rules on the single market in order to come to an agreement with the UK. While his statement that they are prepared to offer a partnership that has never existed with another third country is positive for negotiations – as it moves away from discussions over the UK adopting an existing model, which was never particularly helpful – Brussels was clearly concerned that it sent the wrong message and sought to clarify its position.

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The result is that the pound has gone from trying to break back above 1.30 against the dollar to back below 1.29 and once again looking a little soft. That isn’t being helped by the widespread disapproval of UK Prime Minister Theresa May’s Chequers plan which initially triggered the resignation of two prominent Brexiteers in her team – David Davis and Boris Johnson. It seems that the numbers of those that support the agreement is dwindling and with the EU also not on board, it looks dead in the water which means that with only a couple of months until the revised deadline, we’re back to square one.

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Manufacturing PMI lowest since Brexit referendum

Putting sterling under further pressure this morning has been the August manufacturing PMI which slipped to 52.8, easily missing expectations and suggesting that even a weaker currency is failing to support the sector. The PMI slipped to its lowest since July 2016, just after the Brexit referendum, citing near stagnant employment growth and a slowdown in the rate of output and new order growth. Of course, this could be a temporary blip but the general trend hasn’t been great and it’s just another worrying sign ahead of exit day, with no deal still being a very real possibility.

UK Manufacturing PMI

The number is the first of three PMIs this week, with the services number on Wednesday being of particular interest given the outsized contribution of the sector to the economy. Should those numbers also provide a more pessimistic view of the economy heading into the end of the year, we could see further pressure on the pound, especially if this is accompanied by more criticism of May’s plans, with MPs due to return to parliament.

The rest of the day is likely to be relatively quiet given the bank holiday’s in the US and Canada but the rest of the week will be much more interesting, politics likely stealing the spotlight once again but attention also falling on the August jobs report on Friday.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.