Headlines
UK construction PMI comes in strong
– Service sector report on tap.
GBP/EUR close to 7-yr high
– ‘Grexit’ fears at 2-yr high.
Pound flat vs. US Dollar
– Services PMI to dictate GBP/USD movement.
Canadian GDP impresses
– BOC rate decision on tap.
Sterling
The Pound received a little bit of a fillip yesterday when UK construction data printed higher-than-anticipated. However, because Sterling is currently trading at robust levels versus most of the majors, the uptick in demand was minimal. Construction firms reported an increase in housebuilding, civil engineering and commercial construction projects during February and subsequently the PMI report showed a rise in total output from 59.1 to 60.1. The only downside from the report was that job creation slowed to its lowest rate in over a year due to concerns over the upcoming general election.
Later today the Office for National Statistics (ONS) is due to release its latest UK service sector data, which is poised to show a slight acceleration in tertiary output from 57.2 to 57.5. Anything above 58.0 could give Sterling a considerable boost; whilst anything below 57.0 could reduce the appeal of the Pound.
Euro
The Pound to Euro exchange rate remained close to a seven-year high yesterday as sturdy UK construction data, quantitative easing from the European Central Bank and ‘Grexit’ fears drove investors into UK Gilt yields over Eurozone bonds.
The ECB’s new QE scheme has seriously devalued the yields available on European government debt and as such the single currency has significantly weakened, and indeed is liable to remain weaker for a long period of time.
The other factor that weighed on the Euro yesterday was a report from Sentix showing that markets currently see the possibility of Greece exiting the Eurozone to be the highest since 2012, despite the aid extension deal struck last week. With Sentix’s breakup index sitting uncomfortably high at 38%, up from 24% a month ago, the prospects for a recovery in the single currency look pretty slim at this moment in time.
US Dollar
Sterling remained fairly flat against the US Dollar yesterday but there is likely to be more volatility between the two currencies during today’s session. The most important event to look out for is this morning’s UK service sector PMI because tertiary output accounts for around 75% of British GDP. If the figure prints strongly there is a good chance that the Pound could appreciate.
In terms of the ‘Greenback’, there are a couple of ecostats worth checking out: the ADP employment change report, which is expected to come in sanguinely at 219,000, and the ISM non-manufacturing report, which is tipped to cool slightly from 56.7 to 56.5. Barring any large misses or bumper results the American data is unlikely to have as much of an impact on GBP/USD as the UK services PMI score.
Canadian Dollar
The Pound depreciated by around half a cent against the Canadian Dollar yesterday due to a better-than-expected Canadian GDP score of 0.6% in the fourth quarter of last year. The upbeat quarterly expansion boosted the annual figure to 2.4%, beating forecasts of 2.0%, and this improved the appeal of the ‘Loonie’ because it was seen to reduce the probability that the Bank of Canada will slash interest rates later this afternoon.
Indeed, BOC Governor Stephen Poloz commented last week that rates were likely to remain static for a considerable length of time, but there are still anxieties from traders who feel that the recent collapse in crude oil prices could have a damaging impact on the Canadian economy if further measures are not taken.
Australian Dollar
Australian gross domestic product slowed from 2.7% to 2.5% as expected yesterday, thanks to a slightly disappointing quarterly GDP score of 0.5%. However, the ‘Aussie’ remained up by around 150 pips for the week against the Pound due to the Reserve Bank of Australia’s surprise decision to leave interest rates on hold at 2.25%.
New Zealand Dollar
The upbeat news out of New Zealand’s biggest two trading partners – Australia and China – over the past few days helped the ‘Kiwi’ Dollar appreciate by around 140 pips yesterday. The surprise RBA decision and the relatively sturdy Australian GDP report contributed to the New Zealand Dollar’s strong performance, as did a higher-than-anticipated Chinese service sector score of 52.0, which beat expectations of 51.8 and boosted hopes of cross-trade between the two nations.
Data Released Today
GBP Markit/CIPS UK Services PMI (FEB)
EUR Euro-Zone Retail Sales (YoY) (JAN)
USD ADP Employment Change (FEB)
CAD Bank of Canada Rate Decision (MAR 4)
USD ISM Non-Manufacturing Composite (FEB)