EUR/GBP: Pound to Weaken on Expectations Manufacturing Activity Slowed

The British pound is deemed to maintain its weakness opposite the Euro as fears of a triple-dip recession are likely to intensify amid estimates that the UK manufacturing sector started the year on a somber note. In contrast, economic data from the Euro Zone are likely to suggest that the worst of the economic crisis has passed, providing a lift to the single currency in turn.

In a report that could further append concerns over the health of the UK economy, Markit is anticipated to reveal that factory conditions slowed in the country last month. The Manufacturing PMI is estimated to have dipped from 51.4 points to 51.0 points, indicating expansion albeit at a slower pace. Data showed last month that Britain’s economy shrank by 0.3 percent in the fourth quarter of 2012 as a North Sea oil production slump, lower factory output and a hangover from the London Olympics dented output. According to the report, manufacturing fell by 1.5 percent during the quarter, and today’s report is apt to suggest that the sector is unlikely to recover in Q1 as weather-related issues hampered production levels. On views that the UK economy will enter its third recession since 2008 or an unprecedented triple-dip recession, the Sterling is deemed to dip today.

Over to the Euro Zone, German unemployment unexpectedly declined in January while manufacturing gauges from major economies in the bloc are believed to suggest that the worst of the Euro Zone’s debt woes could already be over. German unemployment fell by 16,000 last month to push the jobless rate to a two-decade low of 6.8 percent, suggesting that the region’s largest economy continues to gain momentum. Meanwhile, manufacturing gauges for release today are seen to signify that other economies are likely to follow suit. The Italian Manufacturing PMI is estimated to improve from 46.7 points to 47.6 points in January, potentially its best reading since March 2012. On the other hand, the Spanish Manufacturing PMI is predicted to incline from 44.6 points to 45.5 in January, its highest reading since July 2011. On signs that the Euro Zone economy could be turning a corner, the single currency is apt to rise, warranting a long position for the EUR/GBP trades today.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.