Cable Hammered on Fixing Flows

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UK PMI manufacturing data slightly missed its estimates but pound tumbled hard in early London trade -far in excess of reaction to the data – as fixing demand for EURGBP cross drove the currency to fresh daily lows. UK Manufacturing PMI came in at 50.8 versus 51.0 forecast with data for the month prior revised lower to 51.2.

Although the headline reading was a bit softer the underlying results suggested a modicum of strength with new orders component rising for the 3rd consecutive month. The news suggests that Q1 may be a bit better for the UK manufacturing sector especially given the fact that the currency has depreciated significantly against the euro.

EURGBP soared today to a high of .8649 as reported fixing demand in London took euro to fresh year to date highs while cable tumbled to a low of 1.5810. The action on the cross has been the primary driver of sterling weakness as investors continue to move back into euros on the unwind of the “EZ breakup” trade.

Cable has been staging a slow recovery this week after posting lows below the 1.5700 level but today’s price action knocked out many of the speculative longs after cable made the sharp reversal to the downside. Still the pair so far has managed to stay above the 1.5800 level and once the fixing flows are done, may try to rebound to the 1.5850 zone as the relief rally continues.

Boris Schlossberg
Managing Director

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