UK Service PMI to Highlight Negative Impact of Brexit Uncertainty - MUFG
Lee Hardman, Currency Analyst at MUFG, notes that the Cable has been one
of the hardest hit crosses by the recent rebound in the US dollar
falling sharply after an intra-day high early this week at 1.4770.
Key Quotes
“It
provided a good example that US dollar weakness was becoming excessive
in the near-term as it is hard to justify cable at close to flat on the
year in terms of performance as the threat of Brexit looms ever closer
on the horizon. As a result the balance of risks has become even more
skewed to the downside for cable ahead of the referendum.
The
recent bounce in cable was driven by a recent pick-up in support for
“Remain” in the public opinion polls but even that appears to have
proven only temporary. More recent polls have reverted back to showing
that support remains evenly split looking at the average results of the
last six polls. The underlying trend since late last year has been
increasing support for “Leave” both in online and phone polls.
It
is also becoming clearer that the heightened uncertainty ahead of the
referendum is beginning to have a more marked negative impact of the
performance of the UK economy. The release today of the latest services
PMI survey will be watched closely to see if it repeats the larger than
expected declines recorded in both the construction and manufacturing
PMI surveys for April.
The surveys are signalling that the UK
economy is likely to slow more sharply in Q2. However, it remains more
difficult to ascertain whether there is also an element of underlying
slowdown as well which is separate from the Brexit uncertainty. In these
circumstances, it is prudent for the BoE to remain in wait and see mode
until after the referendum has passed before materially altering their
outlook for monetary policy.”