GBPUSD, Daily
UK production unexpectedly jumped 2.0% m/m in April and by 1.6% y/y, up from the 0.3% and -0.2% respective outcomes that were seen in March. The median forecasts had been for 0.0% m/m and -0.4% y/y. That was the biggest m/m rise since July 2012. The narrower manufacturing output gauge surged by 2.3% y/y. The unexpectedly strong report defies conjecture that Brexit risk has been taking a toll on economic activity, although PMI survey data is pointing to GDP growth slowing to 0.2% y/y in Q2, which would be half the Q1 figure.
Sterling has been knocked back after rallying following the release to the report. Cable spurted nearly 50 pips higher to a peak of 1.4580 before about-turning to the 1.4540-45 area. The gains offered an opportunity for the Brexit wary to sell. With only two weeks and a day to go to the EU vote, the FT’s poll tracker is showing the Remain campaign only marginally in the lead, with 45% support versus the 43% for Leave. We are of the view that the 12% of undecided voters will come down on the Remain side on the day of the poll. Undecided voters won’t have the headstrong conviction for leaving the EU as the true Brexiters do, and fear of near- to-medium term consequences will, we think, tip them to the vote Remain option. Registration for the poll closed yesterday with many potential voters not registered. According to the UK government’s data website, 525,000 people applied to register to vote during Tuesday – 170,000 were aged 25 to 34, 132,000 under the age of 25 and 100,000 aged 35 to 44.
Janne Muta
Chief Market Analyst
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