U.K. March manufacturing PMI surged to a 5 month high of 39.1 from 34.9 (revised from 34.7) and well above our market median estimate for 35.1. The index has hence moved fusrther away from November’s record low of 34.5, indicating that the bottom might now have been reached for the indicator. But the PMI index is nevertheless continuing to indicate sharp contraction for the manufacturing sector, which is likely to continue to drag overall growth lower throughout 2009. A breakdown of the headline reading showed encouraging data with new orders reaching its highest level since August last year.
Meanwhile, GBP recorded session highs after U.K. March manufacturing PMI hit five month highs of 39.1. Cable traded above 1.4400 and EUR-GBP extended its earlier losses to hit 0.9154 session lows. The cross made steady downward progress after early selling interest from a Dutch name on behalf of a model fund. Stop losses have been flushed out below 0.9170 and could set the market up for a deep correction. Below the 0.9150 region there is very little technical support until the mid 0.9000’s, although natural demand is likely towards 0.9100. Further losses could tie in well with Thursday’s ECB meeting, where a rate cut of 50 bps is being anticipated by the market and could inspire euro short positioning generally. Meanwhile, GBP is expected to enjoy a steadier tone in to Friday amid prospective dividend-related demand from a U.K. clearer.