The closure of much of mainland Europe for May Day, the wind down of London ahead of Monday’s holiday and of Tokyo ahead of the forthcoming Golden Week holiday ensured thin conditions this morning. Sterling took advantage of the thin conditions with EUR/GBP dropping to the 0.8900 area on the better than expected UK manufacturing April PMI data (42.9 vs. 39.1 in March). The move once again highlights how sensitive sterling can be to good news given the weight of short positions that have been built on months of bad UK news. However, the PMI data, while better than expected, is not particularly good news insofar as any number below 50 is still hinting at contraction in the sector. Similarly the releases of lending and mortgage approvals data from the BoE this morning highlights continued weakness in lending to individuals. At GBP0.9 bln, the overall figure was below that printed in Feb as was the net lending on dwelling. In view of this data sterling looks vulnerable to profit-taking.
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