Sterling drops after poor manufacturing PMI; focus turns to construction PMI

The pound slid lower against dollar yesterday as expected after UK manufacturing activity data showed that it's expanded at the slowest rate in last 2 years in June, while Greek debt issues continued to hold up demand for the safe-haven greenback.

Today now its construction PMI's turn, it is expected to rise the surprising May election result saw a housing-friendly conservative administration come to power. This is likely to lead to a post-election increase in housing construction, which should push up the June PMI from 55.9 to 56.5.

It is a quiet day for data releases with the UK construction PMI for June the next most notable. The revisions to UK GDP published earlier this week, which were partially driven by changes to construction estimates, showed that while this sector is relatively small it can have an outsize impact on GDP.

However, it should be observed that the correlation between the PMI and the official construction output series is not always very high. We forecast a PMI rise for June.

GBP/USD hit 1.5676 during European morning trade, the pair's lowest since June 29; the pair subsequently consolidated at 1.5677, shedding 0.21%.