FX report: Pound falls against the dollar after weak PMIs

The pound fell further against the dollar on Friday as weak UK manufacturing data dampened the economic outlook.

Sterling dropped 1.06% versus the dollar to $1.3098 at 1517 BST. At the same time the currency was also 0.87% lower against the euro at €1.1891.

Markit’s flash UK manufacturing purchasing managers’ index (PMI) came in at 49.1 in July from 52.1 the month before, falling short of economists’ expectations for a reading of 50. This was the lowest level since February 2013. A reading below 50 indicates contraction.

"Sterling has reacted negatively, although the fact that the release has not erased all of the pound’s rally from earlier this week suggests that bad news is already priced in,” said Ranko Berich, head of market analysis at Monex Europe.

“Further large scale sterling weakness may depend on easing from the Bank of England, which is likely to be forthcoming after today’s release.”

The flash services PMI for the UK slid to 47.4 from 52.3 in June, missing expectations of 49.2 and marking the lowest reading since March 2009.

The UK composite PMI, which combines both the services and manufacturing sectors, fell to 47.7 in July from 52.4 in June.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The collapse in the composite PMI to its lowest level since April 2009 provides the first major evidence that the UK is entering a sharp downturn.”

The report also fuelled expectations that the Bank of England will cut interest rates at next month’s meeting, which would likely push the pound lower.

In the eurozone, the flash composite PMI also slipped to 52.9 from 53.1 in June, hitting an 18-month low but better than expectations for a reading of 52.5.

The services PMI came in at 52.7, down from 52.8 in June, also marking an 18-month low but ahead of expectations of 52.5.

The manufacturing PMI nudged down to 51.9 in July from 52.8 the previous month. This marked a two-month low and was a touch below the expected reading of 52.0.

The euro was down 0.09% against the dollar at $1.1016.

Meanwhile, the yen also weakened 0.11% against the dollar ahead of the Bank of Japan’s policy meeting next week with analysts expecting further money-printing initiatives.