Pound Drops Before PMI Manufacturing Release

The pound consolidated during the early morning session ahead of the PMI Manufacturing report that is forecasted to remain on lowest level in 18 months. A gauge of output is expected to print 52.3 in June from 52.1 in May, which would reflect the drop seen in the Eurozone manufacturing PMI. Sterling came under pressure yesterday after report showed consumer confidence fell more than economists forecast in June while the Bank of England’s Credit Conditions Survey said mortgage demand is set to drop in the third quarter. Market participants speculate that faltering economy will limit the BoE officials to increase interest rates in 2011, while the European Central Bank is expected to lift borrowing costs on their next meeting. Bank of England policy maker Adam Posen said on June 27 that a call by the Bank for International Settlements for higher rates worldwide to curb inflation was “nonsense”.  Expect for the pound to remain under pressure as Britain’s economic outlook looks dire at the moment and BoE is anticipated to prolong its interest rate increase by May 2012.