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British PMI Misses Target

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The UK’s Chartered Institute of Purchasing and Supply has just published it’s latest Purchasing Managers Index (PMI) for the Manufacturing sector, the headline rate is 55.3. This compares against a consensus expectation of 56.7 and a previous month figure of 56.9.

The Manufacturing PMI number is generally an important economic indicator for an economy, however as this is a particularly quiet week in terms of data releases for the UK, the PMI number is getting even more market attention than usual.

Despite being a valuable indicator there is little likelihood of today’s PMI figure interrupting the current upward phase of the British Pound. Sterling currently has its own momentum and has been enjoying a week long bull run as it bounced off some very solid and long term support at 1.6480 against the US Dollar. The current technical trading channel is well established having been tested on each of the upside and downside four times since the middle of 2013.

Markets are very bullish on the UK’s recovery and therefore the British Pound. All indicators are pointing in the right direction and the government has even announced measures to tackle the concerning current account deficit. Sterling therefore remains justifiably well bid, if current trends continue then Cable could be expected to challenge the $1.70 level as early as the end of this month, at which point it will encounter some strong resistance from the upper trading channel boundary.

An upside breakout of the current channel is therefore the market event to watch out for, breaking out of this channel however is a whole other ball game and will require something from the Bank of England to indicate not just incremental economic improvements but a suggestion of a shift higher in expectations for the British economy. Therefore it would take an earlier than expected announcement of monetary tightening to achieve sufficient momentum to accelerate the Pounds appreciation.

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