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Strong UK manufacturing not enough to hide weakness in UK economy

Strong UK manufacturing not enough to hide weakness in UK economy

Yesterday was a disappointing day for Sterling overall, despite stronger than expected manufacturing data. The PMI figure came in at 50.1, showing a return to growth in the manufacturing sector last month. The data was released at the same time as extremely weak net lending data from the UK, however. Both mortgage approvals and monthly net lending to individuals showed significant losses, highlighting the overall weakness in the UK economy at the moment.

Today, Sterling will look to rebound from the 1.4392 low against the Dollar seen late in yesterday’s trading session. Construction PMI data is due to be released this morning, with the market expecting a figure of 51.9.

The Euro strengthened by more than 1% against the Pound during yesterday’s European trading session as the Eurozone Markit PMI figures came in on target at 51.5. The single currency ended the day at around the 1.2877 levels as it continues to outperform Sterling in the lead up to the European Central Bank (ECB) interest rate decision due later today. President Mario Draghi is not expected to make any changes to the interest rate or current monetary policy as the June EU referendum is fast approaching.

The Dollar was on the defensive yesterday due to the uncertainty over whether the U.S. Federal Reserve will raise interest rates later this month. The Dollar trade weighted index was down just over 0.40% yesterday due to this uncertainty.

Data wise, the US economy showed signs of growth after the ISM manufacturing index held above the 50.0 level with an improvement to 51.3 for May from 50.8 previously. The Fed’s Beige book reported that modest economic growth continued within the economy, with moderate gains in employment and wages.

The Dollar reached its strongest level against the Pound in over two weeks after Brexit concerns continued to hamper Sterling strength. GBPUSD opened this morning at 1.4415, showing a drop of 0.46% from Wednesday’s open. The Greenback lost ground against the Euro yesterday, with the pair opening this morning at 1.1188.

Data to watch: UK 9.30am May Construction PMI. 10am Euro April Producer Price Index, Month on Month & Year on Year. 12.45pm Euro ECB Interest Rate Decision. 1.30pm ECB press conference. 1.35pm US Fed Member Powell speech. 2pm UK Bank of England Governor Carney speech.

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