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British Pound Forecast: GBP/USD, GBP/EUR Softer as Manufacturing and Brexit Weighs

July 2, 2019 8:19 am | Modified July 2, 2019 8:19 am
AUD, EUR, GBP, USD | BY Ben Scott

After a spike in UK manufacturing activity at the start of the year, a slowdown had always been expected. However, the speed of the decline reported yesterday provided cause for concern over the outlook for the broader UK economy. This took a toll on the Pound against the US Dollar (GBP/USD) although Sterling fared rather better against the Euro (GBP/EUR).

An ongoing battle over agreeing on nominations for senior political appointments at the European Parliament is dragging on the common currency, allowing the Pound Euro exchange rate (GBP/EUR) to make some incremental gains. Further afield, a depressing assessment of the Australian economy along with interest rates being cut to all-time lows has delivered losses for the Australian Dollar (AUD).

Bigger Than Expected Slump in UK Manufacturing Hits British Pound

The British Pound exchange rate slumped against major currencies, including the US Dollar (GBP/USD) and Euro (EUR/USD) early in yesterday’s session, after the release of disappointing economic data. The UK Manufacturing Purchasing Managers’ Index (PMI) for June came in at just 48.0, well below the expected 49.5 forecast, marking the lowest reading in over six years. Earlier in the year, factory output had increased as manufacturers prepared themselves for the previous March 31st Brexit deadline, so the slump wasn’t entirely expected, but combined with news of sluggish consumer borrowing, there are now mounting concerns over the broader health of the economy. Second quarter Gross Domestic Product (GDP) contraction is now emerging as a threat, and with months of political and economic uncertainty ahead, further bad news for Sterling could still lie in wait.

Ongoing European Political Uncertainty Weighs on Euro Exchange Rate

Despite some reasonable positive economic news in the shape of Eurozone unemployment falling to 7.5%–a new post-credit crisis low and increasingly close to the all-time low of 7.3%–the Euro struggled during Monday’s trade. The common currency lost almost a full cent against the US Dollar (EUR/USD), with ongoing political uncertainty in focus. The conundrum over appointing a new President of the European Commission, along with a host of other senior EU political roles, continues to drag on and the uncertainty here is failing to provide much confidence for the market. With that in mind, once more clarity does emerge then the Euro may be free to break higher, paving the way for gains on the Euro-US Dollar exchange rate (EUR/USD) and losses on the Pound-Euro rate (GBP/EUR).

Why Did it Move? GBP/AUD

The British Pound has gained around three-quarters of a cent against the Aussie Dollar (GBP/AUD) since the start of the week. In the last few hours, the Reserve Bank of Australia (RBA) cut interest rates to a record low of just 1.0%, while the bank’s Governor stated that there was room from improvement in the economy, too. This comment leaves the door open for further rate cuts in due course, although the Pound Aussie Dollar (GBP/AUD) exchange rate has already slipped back from overnight highs of 1.8175. From starting the week at 1.8025, the cross now trades just above 1.8100

 

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