Sterling moved lower on Wednesday following a softer than expected downward shift in the UK manufacturing purchasing manager’s index. The GBP/USD currency pair is poised to test support near the 20-day moving average near 1.5620, and a break of this level would see a move toward target support at an upward sloping trend line near 1.55.
The UK manufacturing PMI hit a two-year low in June, with the Markit survey unexpectedly falling to 51.4 from a downwardly revised 51.9 in May. The median forecasts had been for an increase to 52.5. Sterling strength, which near seven-year highs in trade-weighted terms, is impacting the manufacturing sector, offsetting stronger domestic demand. The sector tends to be more sensitive to exchange rates than the big services sector. The PMI report found that manufacturing growth trends in output and new orders were the weakest since Q1 2013. Sentiment dropped in the UK and on the continent as Europe wrestles with the potential exit of Greece.
BoE Governor Carney said low rates could persist for quite some time, which is similar to the message that the bank’s chief economist Haldane gave earlier in the week in an effort to cool the recent heating up of tightening expectations in markets. Carney also said that the BoE is hoping for the best but preparing for the worst with regard to Greece.