GBP in Poor Start to 2015 as Markit Manufacturing PMI Undershoots

The pound exchange rate complex (GBP) has suffered at the hands of the first major economic release of 2015.

Data concerning the UK’s industrial sector came in well below analyst expectations which prompted currency markets to sell the UK unit.

The decline comes just as the pound reaches a 6 year best against the euro. GBP/EUR currently trades just above the 1.280 region.

The news sent the pound dollar exchange rate (GBP/USD) down to 1.5431.

Manufacturing PMI

The first of the three PMI releases is that from the manufacturing sector and gives markets a timely insight into how industry is faring.

The December data, released in January, showed a reading of 52.5 - anything above 50 represents expansion.

However, the reading shocked analysts who had expected a read of 53.7.

“The UK manufacturing sector ended 2014 on a softer footing, as December saw rates of expansion in production and new orders ease to the second slowest for over one-and-a-half years,” say Markit who compile the report.

However, taken in the broader context the data shows us that the UK economy continues to move forward, driven largely by domestic demand according to Markit:

“Companies reported that product promotion, new customer wins and improved client confidence all contributed to the latest increase in total new orders.

“However, the domestic market remained the prime source of new contracts, as the trend in new export orders stayed lacklustre in comparison.”

GBP/EUR Reaches 6 Year Record

Ahead of the January data we saw the pound heading higher against the single currency which continues to be dogged by soft sentiment.

According to Charles Purdy at Smart Currency Business:  

“We enter the New Year with high levels of uncertainty in the Eurozone.  The upcoming Greek election could result in an anti-austerity and anti-Eurozone government determined to renegotiate the existing debt agreements it has in place.

“We are also waiting for the European Central Bank to start their much anticipated programme of quantitative easing with the aim of kick starting the Eurozone economy.

“This uncertainty has resulted in euro weakness and this morning the euro briefly reached a level against sterling last seen in 2008.”

EUR/GBP Remains in a Bearish Pattern

Despite the relief for the euro it must be remembered that the EUR/GBP is in a longer-term downtrend and it appears there is little to suggest the trend is yet to be broken.

According to Joshua Mahony at Alpari:

“The pair is clearly moving closer to the 0.776 level and thus we could see a bounce in the near future. Thus the area between 0.7794 and 0.776 could be key as a rebound zone given that the recent low didnt quite reach 0.766.

“In terms of a major move higher, I would be looking for the pair to break above the 200 dSMA as this hasnt been broken for over a year.

“However, should we see the pair push below the 0.776 level, it could bring a key signal that we are going to see lower prices and thus it could spark a major move lower. In which case the major levels of support I can see are around 0.7683 and 0.744.”