THE TAKEAWAY: UK PMI for manufacturing drops to 47.5 in October -> Weaker exports to Europe partially responsible for decline -> Sterling trading higher despite weak PMI
A drop in UK manufacturing has accelerated at a faster pace according to the Purchasing Managers’ Index by Markit Economics. The PMI for manufacturing for October was reported at 47.5, lower than the expected 48 index result and lower than September’s revised 48.1 PMI. A PMI below 50 indicates a drop in manufacturing activity, and October marks the sixth straight month of negative activity.
The decline in activity resulted from a combination of declining export sales, weaker domestic demand, and rising cost pressures. Output was lower because of a reduction in new work received. The drop in exports was mainly due to European weakness.
The lower PMI is a negative indication for economic performance in the first month of the fourth quarter. A deteriorating UK economy is negative for the British Pound in currency trading.
That is why in forex markets the British Pound erased some of its earlier gains against the US Dollar. However, the losses were short lived and GBPUSD is now trading back above 1.6150. A monthly high at 1.6178 could provide resistance, a broken downward trend line could provide support at 1.6075.
GBPUSD 15-minute: November 1, 2012
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