manufacturing downside causes businesses to fold

So we have added another country to the list of western nations that have fallen back into recession following Spain’s preliminary reading of -0.3% for 1st quarter GDP. The combination of austerity and an unemployment rate of close on 1 in 4 people of working age will do that to your country, and with green shoots still well underground the situation is not improving any time soon. There was not too much of a calamitous fall for the euro however, as the -0.3% reading was actually better than the market had expected.

Sterling has slipped back from its recent highs in the past 24hrs with traders trimming bets that the pound would appreciate ahead of today’s manufacturing PMIs. The number, while expected to stay above 50.0 and therefore denoting expansion, is likely to be lower than last month’s reading of 52.1. The past month or so has seen a slip in the confidence surrounding the manufacturing sector with the last reading of industrial production particularly weak. The situation will not have been helped by the increases in the value of the pound in recent weeks with the detrimental effect to the export sector being obvious. We’ll know at 09.30.

Sterling is a very data dependent currency and we foresee that the tealeaves of the 2nd quarter are likely to be worse than that of Q1. This is likely to increase the chances that we see another round of quantitative easing by the MPC soon, which in turn should weaken the pound. As a result, we expect to see sterling trade lower by the end of the week as these expectations intensify.

Large moves have also been seen overnight in the value of the Aussie dollar following the Reserve Bank of Australia surprised a majority of the market by cutting interest rates by 50bps. While this will ease conditions within Australia, the larger effect is in regards to the country’s relationship with China. History suggests that a 50bp cut is a medicine only administered by the RBA when the situation looks particularly dire. It seems that the Australian authorities are more scared than most that a Chinese hard landing may be somewhere over the hill.

That being said, China’s manufacturing PMI for April did return a better figure than previous (53.3 vs 53.1 previous) although it did miss expectations of 53.6.

It is of course May 1st today and therefore a bank holiday throughout most of Europe. It is expected that this will be used as a welcome excuse for unions and workers to protest the latest round of economic austerity throughout Europe and news bulletins are almost certain to focus on any violence that may be forthcoming.

The story remains with manufacturing in the US session with publication of the latest ISM number and the market looking for a similar move to that of the UK’s; lower but still expanding. The figure is due at 15.00.

Indicative Rates

Sell

Buy

GBPEUR

1.2222

1.2249

GBPUSD

1.6209

1.6233

EURUSD

1.3246

1.3269

GBPJPY

129.14

129.42

GBPAUD

1.5711

1.5737

GBPNZD

1.9924

1.9952

GBPCAD

1.6013

1.6043

NZDUSD

0.8126

0.8146

GBPZAR

12.56

12.61

USDZAR

7.7411

7.7682

GBPPLN

5.0926

5.1198

EURJPY

105.54

105.81

 

Please note these rates are “interbank” rates ie they indicate where the market is currently trading and are not indicative of the rates offered.  Rates are dependent on amount   transacted. It is important to remember that foreign exchange rates   fluctuate all the time. The rate you will receive will depend on the amount   and currency you require. for a   live quote or login in to your Online Account

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