GBP/USD Fundamental Forecast – September 2, 2016

The GBP/USD soared 108 points to trade at 1.3248 its highest level in since the Brexit vote after UK manufacturing PMI printed better than forecast showing that the UK is out performing expectations and that Brexit has not had such a dramatic effect on the economy as first thought. The pound has jumped across the board after the U. K’s PMI rose to a ten-month high last month. Manufacturing activity came in well above forecasts at 53.3 vs. July's 48.3. The market had expected the reading to remain below the 50 levels, which signifies contraction. It would appear that the early impact of Brexit is a win win for UK manufacturers.
Not only is it still too early in the process for domestic consumers to be feeling the potential pain of Brexit – in fact demand increased, possibly aided by spending abroad suddenly being that much more expensive – but the sharp depreciation of the pound has spurred demand from abroad for UK manufactured goods. While this is great news, it's still very early in the process and much of the pain caused by Brexit will likely come later on. That said, it is encouraging that the drop in the pound is immediately supporting UK exporters, which will help cushion the blow.

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