The British manufacturing industry sidestepped sturdy growth last month in favour of job losses and softer output, according to yesterday’s PMI print.

The lowlight of the report was the jobs sub-index, which came in below the 50.0 mark that separates growth from contraction for the first time since 2013. However, the Pound avoided any heavy losses because the headline PMI index came in at 51.5, which was slightly better than economists’ forecasts of 51.3 but still represented the second slowest score in the last two years.

Analysts said that the current trend of soft performance in the manufacturing sector supported the view that interest rates should remain at ultra-low levels to support firms whilst weaknesses in Britain’s main export markets restrict potential growth.

Euro

The Pound to Euro exchange rate remained close to multi-month lows yesterday as Sterling’s efforts to mount a recovery were shutdown during the afternoon.

Eurozone manufacturing growth slowed to a five-month low of 52.0 in September, down from 52.3 in August. The headline number wasn’t seen as too much of a negative indicator, however, there were concerns from some areas of the market that further declines in both input and output prices could stoke disinflationary pressures in the currency bloc.

At this moment in time it looks fairly likely that the European Central Bank will be persuaded to bolster its asset purchasing programme over the next 12 months but the likelihood of this happening before Christmas looks quite slim.

US Dollar

The Pound jumped higher by around a third of a cent against the US Dollar yesterday afternoon as investors got wind of a sentiment sapping US manufacturing report but Sterling gave up its gains during the evening as ‘Cable’ ran out of momentum.

The headline American ISM factory output index slowed unexpectedly from 51.1 to 50.2 in September thanks to a slump in new orders, import growth and employment. The result was the worst in over two years and therefore adds to the confusion over when the Federal Reserve will opt to begin hiking rates.

Policymakers at the Fed are split on whether rates should be raised immediately or whether the bank should wait for further signs of sturdy growth. But after so many months of postulating it appears that the central bank could do more damage to business sentiment by not hiking in 2015 than by tightening monetary policy for the first time in nine years.

This afternoon’s US non-farm payroll report could drive rate hike bets higher if the number beats estimates of 202,000 but the US Dollar could suffer if the NFP report disappoints.

Canadian Dollar

Sterling weakened by around a cent yesterday to strike its lowest level in almost a month against the Canadian Dollar.

The ‘Loonie’ was supported by Wednesday’s better-than-anticipated domestic growth results, which dampened Bank of Canada rate cut expectations. GBP/CAD remained soft during the New York session even though a manufacturing PMI report showed that Canadian factory output declined at a rate of 48.6, down form 49.4 in September.

Australian Dollar

The Pound to Australian Dollar exchange rate dipped to a fortnightly low yesterday morning as a slightly better-than-anticipated Chinese manufacturing PMI result boosted demand for the ‘Aussie’. However, the weak global growth outlook ensured that Sterling was able to mount a recovery during the New York session as traders contemplated a prolonged period of dampened risk appetite.

New Zealand Dollar

The Pound followed a similar trajectory against the New Zealand Dollar as against the ‘Aussie’ – dipping in the morning and clawing back its losses during the afternoon. GBP/NZD struck a five-week low but demand for the ‘Kiwi’ gave way allowing Sterling to bounce back.

Data Released

09:30 GBP Markit/CIPS UK Construction PMI (SEP) Medium 57.5
13:30 USD Unemployment Rate (SEP) High 5.1%
13:30 USD Change in Non-farm Payrolls (SEP) High 202k
13:30 USD Average Hourly Earnings (YoY) (SEP) Medium 2.4%