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Disappointing UK PMI Figure

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The UK’s Chartered Institute of Purchasing and Supply has just published it’s latest Purchasing Managers Index for the Construction sector, the headline rate is 62.6. This compares against a consensus expectation of 63 and a previous months figure of 64.6

It should be noted that this is the PMI Construction number and not the PMI Manufacturing figure. The latter tends to have a more direct effect on GDP and therefore the markets. This is not to take from the importance of the Construction PMI data, it provides a valid trend for the strength of the UK’s building sector which has been very robust of late.

As important as it is, there is little likelihood of today’s PMI figure providing a sustained impetus for the British Pound. If Sterling is to find the momentum to break out of the current short term range then tomorrow’s inflation report hearing and Thursday’s Bank of England interest rate decision are the only UK economic events this week that matter.

The Bank of England has not adjusted the base rate from 0.50% since fixing it there in March 2009. Pressure is mounting on the Bank to begin raising rates this year particularly in light of the falling unemployment situation. The Bank however has been citing inflation as providing scope to keep rates low for the next few quarters.

Sterling is well bid but appears to be waiting for a strong cue from the Bank of England before recommencing it’s run higher. Since July of last year the British Pound has risen a full 20 big figures against the USD. A strong resistance line just above $1.68 has capped this rise of Sterling, this dates back to the middle of 2009, a failure to break through this resistance in 2011 precipitated a pullback of over 10% in USD/GBP. This morning’s disappointing PMI number will not help Sterling’s assault on $1.68 but in light of more important data later in the week it will not contribute to any significant sell off either.

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