Data released yesterday morning in the UK showed the manufacturing sector suffered its steepest decline in activity in over 6 years. The UK PMI manufacturing fell to a 76-month low of 48.0 in June from May's 49.4 as Brexit uncertainty and global trade tensions continue to have a negative effect on the UK economy.
Earlier in the year companies furiously bought raw materials and parts in case of a no deal Brexit. The downturn in manufacturing was blamed on companies using up their stockpiles. One glimmer of hope emerged though as the 44% of businesses surveyed expected activity would increase in the next 12 months whilst only 14% predicted a decline.
As the Conservative leadership campaign continues, both Jeremy Hunt and Boris Johnson have said they are willing to take the UK out of the European Union without a deal if re-negotiations prove futile keeping the pound under pressure. Additionally, both candidates have promised to increase spending on public services and infrastructure to help appeal to Conservative members.
GBPUSD dropped from an early high of 1.2701 to session low of 1.2637 shortly after the PMI data, the pound managed to recover some of the lost ground and closed at 1.2652.
Similarly, GBPEUR fell in the morning from 1.1201 to 1.1138, but with the euro under pressure later in the day, the pound was able to reverse the earlier losses, touching a high of 1.1204 shortly after markets closed for the day.
The US dollar climbed to 2-week highs after the US and China agreed to resume trade talks prompting investors to sell off perceived safe haven currencies such as the Japanese yen and Swiss franc in favour of the dollar.
In the highly anticipated meeting between US President Donald Trump and Chinese President Xi Jinping over the weekend at the G20 summit in Japan, the two leaders agreed to make concessions in an attempt to reduce trade tensions between the world’s two biggest economies. Trump said he would hold back on new tariffs and offered to ease restrictions on Chinese tech company Huawei, whilst China said they would delay tariffs of their own and buy more farm products.
The dollar index rose 0.5% to 96.84, the highest it has been since June 21. In particular the Swiss franc fell 0.8% against the dollar and the yen weakened by 0.3%. The euro was down too, EURUSD reversed early gains to fall from 1.1355 throughout the afternoon to a low of 1.1285.
