Pound Remains Lower Against Euro Despite Higher UK PMI Result

Renewed upside inflationary pressure in the United Kingdom is having little effect in foreign exchange markets, with the British pound remaining lower against the euro on Monday morning.

The UK manufacturing purchasing managers index (PMI) rebounded unexpectedly in October to 41.5, up 0.3 points from September's figure, according to Markit Economics. Economists had expected a further decline in the index to 40.1. Meanwhile, September's figure was revised up from an initial estimate of 41.0. The euro is subsequently up 0.0017 to 0.7939, at session highs following the release of the UK data at 4:30 a.m. EST.

Calyon deputy head of global FX strategy Daragh Maher wrote that the data was not that much of a surprise compared to September's print.

"After such a sharp plummet [in September from 45.9in August], it was always going to be difficult to decide whether it might extend or post a 'dead cat bounce'. That we have seen the latter rather than the former does not change the fact that this series remains at a very weak level historically and is consistent with a UK manufacturing sector mired in recession," he said in a research note.

Earlier in the overnight session, the euro zone manufacturing PMI came in slightly below expectations, with a 41.1 reading for the month of October, against expectations for a flat 41.3 reading. The EUR/GBP held steady, while the EUR/USD inexplicably rose 0.0046 to 1.2862 through the data's release. The euro is now up 0.0120 to 1.2845 against the U.S. dollar.

In the U.S., the Institute for Supply Management (ISM) manufacturing survey for the month of October will be released at 10 a.m. EST. A 41.5 reading is expected following a 43.5 reading in September.

Helaba Research's Ralf Umlauf is calling for a EUR/USD trading range of 1.2630-1.3260 for the week.

"A weak ISM index should underpin the euro today. The technical setting is also supportive. The [Moving Average Convergence / Divergence] is still heading north. If a buy signal is generated, there will be potential for a recovery. The 38.2% retracement of the downtrend since July is at 1.3750," he wrote.

The euro similarly rose to 127.54 levels from 16.90 levels against the Japanese yen prior to the 4 a.m. release of the European data. The euro dropped 0.0016 against the Canadian dollar during a session of particularly choppy trading. The cross is now down 0.0086 to 1.5351.

EUR/USD up 0.0120 to 1.2845.
EUR/CAD down 0.0086 to 1.5351.
EUR/GBP up 0.0017 to 0.7939.
EUR/JPY up 2.02 points to 127.36.