Pound Slides v Euro and US Dollar on Manufacturing Data Shock

The British Pound to euro conversion collapses half a percent and reaches critical support zone. Pound to dollar conversion falls from mid-week highs putting recovery from 2015 lows at risk.

The UK economy joins a global trend and is seen slowing down according to the first economic data release of May.

The British pound has fallen against the euro and dollar while relinquishing strong advantages against the likes of the Australian and New Zealand dollars.

"The British pound traded sharply lower versus the euro and British pound today, with EUR/GBP rising to its strongest level in 2 months," confirms Kathy Lien at BK Asset Management.

The first data release of the month concerning the manufacturing sector confirms a trend we are seeing right across the globe – economic growth is slowing down.

The slowdown comes despite record-low oil prices and unprecedented amounts of money being pumped into the financial system by global central banks.

The once solid UK economy is apparently not immune to this trend.

A reading of 51.9 was delivered by the Markit/CIPS Manufacturing PMI survey. A reading of 54 was expected suggesting this is a big miss in expectations.

The pound sterling has been sold-off as a result:

The pound dollar exchange rate (GBPUSD) is converting 0.38 pct lower at 1.5293. This is down from 1.5498 reached mid-week. We warned that the pair was due a decline after the solid run that has delivered strong gains over recent weeks.

The pound euro exchange rate (GBPEUR) is converting half a percent down on the previous day’s close at 1.3603. This is a key level of support for the pair and will be critical to the outlook.

A Marked Slowdown for the Manufacturing Sector

Markit and CIPS report that April saw a marked slowdown in the rate of expansion of the UK manufacturing sector.

“The slowdown in the rate of increase of output occurred in tandem with weaker growth of incoming new business, in turn led by a decrease in the volume of new work received from abroad,” says a report issued by Markit pointing the finger at the poor external environment.

The Eurozone’s economic growth remains as sluggish as ever while the United States shocked markets this week with the release of a poor set of GDP figures for the first three months of 2015.

“The domestic market showed solid leadership by providing the source of many of the new orders albeit at a more subdued level, with export orders still dragging their feet,” says David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply.

With regards to the outlook for the pound we would certainly remain on the side-lines for now as we head into a politically charged first full week of May.

The UK elections could spark fresh volatility and we have suggested those with currency requirements speak to their independent currency providers to discuss setting up a strategy to mitigate against losses while taking advantages of any positive moves.

"In the past two trading days, we have seen the UK currency lose more than 2% of its value versus the euro and a further decline is possible if the outcome of next week's general election is undesirable," notes Lien.