Pound falls as economy wobbles

4 May, 2016

Robin Haynes

Pound falls as economy wobbles The Pound fell around a cent against both the Euro and US Dollar yesterday, as official figures showed a contraction in manufacturing output for the first time since March 2013.

The Markit manufacturing PMI figures came in at 49.2, with a number below 50 showing a contraction, compared to 50.7 in March. This comes after last week’s GDP figures, measuring economic growth, also fell, from 0.6% to 0.4% in the first quarter of 2016. With around 20,000 job losses in manufacturing (which accounts for around 10% of UK economic output) in the last 3 months, there is added pressure on the services sector to continue to support GDP growth. Any further worries about economic growth, particularly as we approach the EU referendum, are likely to send the Pound lower as investors worry about the outlook for Britain’s prosperity.

An additional worry for Euro buyers was that growth in the single currency zone was announced last week as a better than expected 0.6%, meaning that the Eurozone recovery is now on par with the UK’s, perhaps for the first time since the global economic crisis. This is only likely to make the Euro more expensive should these trends continue and if we start to see Eurozone growth outpace that in the UK.

Australian Dollar 2% cheaper
One currency which has dropped in price against sterling this week is the Aussie Dollar. Yesterday morning the Reserve Bank of Australia made a surprise 0.25% cut in interest rates to a historic low of 1.75%, as fears of low inflation pushed the central bank into action. Lower interest rates usually mean a cheaper currency, and this was the case for the AUD which plunged in value, improving exchange rates for sending money to Australia by nearly 3c (1.5%) in the early hours of yesterday morning.

Quiet day ahead
As with much of this week there is little to speak of in the way of major economic releases today. There is a non-monetary policy European Central Bank meeting, and Eurozone retail sales at 10am, along with some minor US and Canadian data this afternoon. In the UK of course we have local elections tomorrow, which are not usually relevant to exchange rates, but may be an indicator of pro or anti-EU sentiment ahead of the referendum, so there could be something for the markets to digest as results start to come through on Friday morning