UK Spread Betting: EUR/GBP Sees Sterling Strength on UK Manufacturing PMI Data
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Over the past few weeks speculation has increased in the UK share trading markets that the Bank of England could be set to embark on a fresh round of asset purchases at this week’s monthly rate setting meeting.
Dovish comments from a number of policy makers, as well as recent down-beat economic, data could well prompt other MPC members to join habitual dove Adam Posen into calling for further measures to boost the economy.
For over 12 months now Adam Posen has been a lone voice calling for further measures to boost the UK economy, with the injection of £50bn of further stimulus.
The last set of minutes from the Bank of England showed that the committee was starting to lean in the direction of further stimulus; however the votes remained the same with an 8-1 majority for maintaining the status quo.
Falling retail sales and consumer confidence has prompted some policymakers to publicly suggest that they might be persuaded for the need for further measures. However, today’s manufacturing PMI numbers for September could well see the Bank stay its hand at this week’s meeting.
The manufacturing PMI came in at 51.1, expanding for the first time in three months, well above expectations of 48.5 and also an increase on August’s 49.4.
The one cloud in this apparent silver lining is that new export orders fell to 45.00 from 46.9 which, given the problems in Europe, our biggest export market, continues to be a cause for concern.
The manufacturing PMI has been the one indicator exhibiting contraction in recent months; while construction and services have also declined, they remained in expansion territory for the last quarter.
These other two PMI’s are expected to remain above the 50 level this week and, given that they continue to do so, the expectation is probably that the Bank of England will maintain its current “wait and see” approach. This is, of course, especially true given that it may need to act if the situation in Europe continues to deteriorate.
The mathematics on the committee also mitigate against new QE this month, given that it would require four more members to side with Adam Posen on this. While we might well expect two or three members to side with him, four is a bit more of a stretch.
The next set of minutes will be highly informative for the UK spread betting markets if, as is now expected, the Bank does hold pat this week.
The Pound, despite all this speculation on further easing, has been remarkably buoyant, rising on its trade weighted index to two week highs, near 79.50, though it has slipped somewhat today.
Against the single currency it continues to be the better performer and, if the EUR/GBP pair can sustain a move below the £0.8575 area, we could well see further Sterling gains towards £0.8450.
Technical analysis suggests that this would be the 61.8% retracement of up move from the lows at £0.8065 to the recent highs at £0.9085. The £0.8575 area is 50% retracement of the same move.
Against the Dollar, the Pound has fared less well, falling quite sharply on the FX spread betting markets, but looks to be finding some support around the $1.5480/1.5500 area for the time being.
As long as it is able to hold above the $1.5480/1.5500 area we could well see a move back towards the recent highs at $1.5700, while a sustained break below $1.5480 could see the September lows retested at $1.5330.
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Original article written by CMC Markets as of 3 October 2011.
Spread betting, CFDs and FX are leveraged products and carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved and seek independent advice if necessary.
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'UK Spread Betting: EUR/GBP Sees Sterling Strength on UK Manufacturing PMI Data' edited by DB, updated 03-Oct-11
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