What is PMI, and why are they important?
Consumer Price Index, a key measure of inflation. The rate at which prices are increasing for goods and services. It is important as this is a key barometer for any central bank, they target a level of inflation, and it influences their interest rate decisions. Their goal is to maintain price stability within an economy. If inflation is above a central bank’s target, they may look to raise rates to cool inflation. On the other hand, if inflation is too low and below their target, they may look at cutting rates to try and bring up inflationary levels.
UK PMI data was released earlier this morning
Uk PMI data came in at positive, beating market expectations and previous recordings (as seen below)
GBP Markit/CIPS UK Services PMI Flash (JUN) – 09:30 BST (Actual: 47, Forecast 40)
GBP Markit/CIPS Manufacturing PMI Flash (JUN) – 09:30 BST (Actual: 50.1, Forecast 45)
June data indicated a vastly improved overall picture across the UK private sector, with the downturn in total business activity continuing to steady after the record rate of decline seen at the height of the lockdown during April. Another drop-in service sector activity contrasted with a return to production growth among manufacturing companies in June.
The headline seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index – which is based on approximately 85% of usual monthly replies – rose to 47.6 in June, from 30.0 in May. The latest reading was below the 50.0 no-change thresholds but signaled the slowest pace of decline since the start of the downturn in March.
However, total new orders continued to decline in June, with manufacturers often commenting on shortages of new sales to replace completed contracts. Survey respondents cited particularly weak demand across the automotive and aviation sectors in June.
June data indicated a much slower reduction in service sector activity than that seen in the previous month. This was highlighted by a rise in the seasonally adjusted IHS Markit/CIPS Flash UK Services PMI® Business Activity Index to 47.0, up from 29.0 in May. The latest reading signaled the slowest pace of decline in service sector output since the start of the downturn in March.
What’s next for the Pound?
This is dependent on what the market focuses on. If markets focus on the PMI data specifically, coupled with a laid back BOE and UK-EU uncertainty, the Pound is likely to fall lower. On the other hand, if markets look at the PMI figures from a more generalized perspective, it could fuel economic recovery hopes and see the Pound pushing higher.
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