The pound – which reached its lowest levels of the year last week – trimmed deep losses on Friday following a rebound in sentiment across global financial markets. This lifted risk currencies like the pound and prompted investors to retreat from the safe-haven dollar. The subsequent move to the 1.35 mid-range against the dollar was made against the backdrop of mounting pressures for the UK currency: the fuel crisis, the end of the furlough scheme, and soft economic data.
September was a month to forget for the UK’s manufacturing sector. Suffering its weakest performance since February when the country was still locked down, according to a closely watched survey.
The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) dropped for a fourth straight month to 57.1 from 60.3 in August, although this final level was higher than a preliminary September reading of 56.3. The data underscored the impact of supply chain problems and staff shortages caused by Covid-19 and Brexit.
The figures have raised fears amongst investors that the UK is descending towards a bout of stagflation, as growth in output and new orders ease sharply but costs and selling prices soar. Rob Dobson, director at IHS Markit, said: “Companies are facing a growing list of headwinds, which includes declining new export orders, component shortages, delays to air, land and sea freight, staff shortages exacerbated by Covid-19 illnesses, Brexit disruptions, sharply rising costs and now fuel shortages.
Dollar subdued by risk sentiment
The dollar was held back by a risk-on mood in markets on Friday, overshadowing data that showed demand is still strong in the US manufacturing sector.
The Institute for Supply Management’s Manufacturing (ISM) Manufacturing PMI jumped to 61.1% last month – its highest post since May – from 59.9% in August, the trade group reported on Friday. Any reading above 50 indicates business activity expanded during the survey period. Economists expected the index to dip slightly to 59.5%. While demand remains strong in the sector, manufacturers are struggling to contend with supply shortages.
Factory Orders are released by the US Census Bureau on Monday. This is followed by a slew of data from the US economy on Tuesday, including the ISM Services PMI for September which is forecast to edge lower. On Friday, the closely watched Nonfarm Payrolls report for September is released by the US Bureau of Labor Statistics, which presents the number of new jobs created during the previous month in all non-agricultural business.
It’s a relatively quiet week ahead in the UK’s economic calendar. Notable economic indicators include the Markit Services PMI on Tuesday and the Markit Construction PMI on Wednesday.