GBP flows: GBP firm as PMI stays strong

Another strong UK PMI number keeps GBP on the front foot across the board, with the EUR also recovering on the back of a better than expected Eurozone PMI, which showed a rise in the composite despite declines in both France and Germany.

The UK composite PMI is now the highest since July, but we would still be wary of too much optimism on the UK economy. After all, in spite of PMIs above current levels from March to July, UK GDP was flat in Q2 and -0.1% in Q3, so the PMIs are not necessarily a reliable guide to growth. Also, even though UK yields are marginally higher after the data, while EUR yields remain lower on the day, yield spreads still don’t really support the current level of GBP, never mind further gains. GBP will nevertheless likely remain firm through today, but upside should be quite modest.