Biggest UK economic slippage in half a century - Dollar higher on weak confidence reading – Manufacturing PMI contest today Good morning. Scientists at Newcastle University have fitted GPS transmitters to puffins. They hope it will help them understand why there has been such a sharp population decline in recent years. A surprise side-effect of the experiment has been the discovery that puffins share with parrots an instinct for mimicry. Many of those fitted with the sat-nav devices can now be heard calling “If possible make a U-turn” as they plummet towards the sea. So far, the experiment is limited to two colonies, in the Farne Islands and Downing Street. The pound’s U-turn yesterday morning happened without any need for high-tech aids. Having pushed it sharply higher after the unexpected news of higher house prices, investors realised they were being silly. Within 20 minutes they had begun to take profits on their windfall gains. Withdrawal turned to rout a couple of hours later when the ONS published the final revision to first quarter GDP. Investors were geared up for a downward revision to the earlier estimate of -1.9% and the consensus was -2.1%. The -2.4% that hit them was therefore a bit if a shock. It was nearly as bad the Euro zone figure for goodness’ sake. The news cost sterling a full euro cent, most of which disappeared in the first hour after the announcement. For cable the drop was not so straight-line but the loss of two cents was at least as painful. Across the board sterling starts today softer than it went into yesterday’s Nationwide announcement. The US dollar is generally firmer, helped by a confidence downgrade among investors who were feeling more uncertain about the global economy. Higher German unemployment and the downward revision to Britain’s GDP set the tone early in the day, closely followed by falling consumer prices in the Euro zone. Lower equity prices did their bit. Paradoxically, what really helped the dollar was a couple of bad figures from the US economy. The Case/Shiller house price index (down 18.1% on the year) and the Chicago Purchasing Managers’ Index (still well into the “bust” zone at 39.9) might have been tolerated, had the market not been in its gloomy mood. What investors could not disregard though was the Conference Board’s index of consumer confidence. It went down by five and a half points to 49.3 when it had been supposed to go up. If the US economy was doing less well there was only one thing to do; buy the dollar. We have seen that reaction several times recently but yesterday’s example was the most blatant so far. The new month kicks off with the regular contest of manufacturing PMIs. For sterling it might be a case of kill or cure. At the beginning of May Britain came top of the pile with 45.4. The States scored 42.8 and Euroland 40.7. Germany and Switzerland were way behind with 39.6 and 39.8 respectively. Can Britain pull it off again? If it can, if the UK figure today is a) better than a month ago and b) better than the opposition, then look for greater enthusiasm among sterling’s supporters. If it cannot tick both those boxes the pound might find itself with another problem.   Click here to for further information

Technical levels Resistance Support EUR/USD 1.4170 1.3935 GBP/USD 1.6740 1.6185 GBP/EUR 1.1800 1.1580 Economic releases LAST EXPECT UK PMI Manufacturing 45.4 46.4 US Pending home sales 3.3% n/a Click here to for further information