United Kingdom Manufacturing PMI Should Bookend the Decline in the British Pound

(This is an excerpt from an article I originally published on Seeking Alpha on August 1, 2014. Click here to read the entire piece.)

The British pound (FXB) has experienced a steep and near continuous decline ever since it hit new multi-year highs in July against the U.S. dollar.

{snip}


The British pound has erased all its gains from June but is still trending upward
The British pound has erased all its gains from June but is still trending upward

Source: FreeStockCharts.com

After a strong June, expectations were very high for July’s UK Manufacturing PMI. The PMI came in at a strong 55.4 in July but under expectations for 57.2. This is the lowest PMI in a year. The good news is that this is now the 17th month in a row that the PMI has been over 50, representing on-going strength in manufacturing conditions. The case for the Bank of England to raise rates sooner than later remains well intact, suggesting the British pound’s erasure of June’s rate-hope gains is a buying opportunity.

The underlying fundamentals for the UK economy remain strong according to the July PMI:

{snip}

Job growth remains robust:

{snip}

Perhaps most importantly, price pressures are still on the rise:

{snip}

All these data points support a rate hike sooner than later to get off the zero lower bound. The British pound is thus a buy here on the pullback.

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on August 1, 2014. Click here to read the entire piece.)

Full disclosure: net long the British pound

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.