British Pound Snaps Out of Negative Run as Construction PMI Beats Expectations

Pound sterling has been under pressure against the euro and dollar for much of the past 4 weeks, but looks ready to fight back at the start of January.

The pound is firmer agianst a number of currencies on the second trading day of 2016 thanks to some better-than-expected UK data.

UK Construction PMI came in at 57.8, welll above the forecast for 56 - something that will please sterling bulls who had to deal with the disappointment presented by the Manufacturing PMI 24 hours earlier.

Markit and CIPS, who compile the survey on the UK construction sector, report that December data signalled a robust and accelerated increase in new business volumes, thereby mirroring the trend recorded for construction output at the end of 2015.

In fact, the latest rise in new work was the second-fastest since July.

“This was a welcome surprise to the end of the year. The perfect conditions of lower commodity prices, helping bring cost inflation close to April’s six-year low, and a supportive UK economy have given the sector a solid foundation to build on with continued positive sentiment for the year ahead,” says David Noble, Group, Chief Executive Officer at the Chartered, Institute of Procurement & Supply.

Pound Exchange Rates Need This Good Data

GBP has been under sustained pressure over the last three weeks, and having decisively broken support at 1.48 – 1.50 against the dollar, printed a new low of 1.4663 yesterday. The Construction PMI will be welcomed as it serves to lay aside jitters over the strength of UK economic expansion.

The pound to dollar exchange rate broke below the 1.50 level in December and is now quoted just above 1.47. A high of 1.52 was seen in December confirming a downward trend has established itself.

The pound to euro exchange rate meanwhile trades at 1.3618 on the wholesale market ensuring those with international payments are being offered a rate closer to 1.32!

Back at the end of November you would have seen levels above 1.42.

So will the pound sterling continue its slide?

We write today that there is hope against the euro - the pound does not typically trade below current levels for protracted periods of time according to trends established over the course of the last year.

We could well see traders now buy the pound on concerns it is oversold against its Eurozone counterpart.

The same could be true of the pound vs US dollar conversion.

“With speculation that much of the downside pressure has potentially been related to an underlying flow, there seems limited scope for further depreciation in the short term,” say Lloyds Bank.

“Initial support should be found at the March/April 2015 lows in the 1.4630/1.4565 area, ahead of the key medium term region at 1.45 – 1.43.  Interim resistance is likely to be at 1.4840/50, beyond which the psychological 1.50 level will be important,” say Lloyds.