EUR/GBP: Manufacturing Data Reflects Britain’s Weak Recovery

After climbing to 49.5 points in August, manufacturing activity in the UK contracted more than economic projections, falling to 48.4 points in September. As a result, the Great British pound suffered against the Euro in the previous European trading exchanges. Meanwhile, manufacturing in the Euro Zone eased in the previous month to 46.1 points, from August’s print of 49.6 points. In today’s European trading exchanges, the single currency is expected to sustain gains versus the Pound.

The UK’s recovery from a deep recession proved to be fragile, as recent signs of economic weakness in the manufacturing sector added weight to the argument that the Bank of England would extend its asset purchases. According to Markit, the downturn in Britain’s manufacturing production extended into a third straight month as order inflow remained lackluster and job losses continued to mount. In addition, cost pressures also surged higher on the back of the recent strengthening of oil, food and commodity prices. Today, markets await the release of the Construction PMI data, which is expected to move towards 50 points. However, the construction industry remains under pressure as businesses signaled deteriorating confidence. Another contraction is seen to drive down the Sterling in today’s exchanges.

For the shared currency, it is projected to rise as the European officials said yesterday that Spain is already ready to request for a bailout from the Euro Zone rescue fund, a precondition for the European Central Bank’s new bond-purchasing program to take effect. As markets remain hopeful that Spain would make an early request, the single currency is seen to get a boost. Thus, a buy bias is recommended for the EUR/GBP pair in today’s European exchanges.

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