Headlines
UK service sector PMI improves
– UK construction slows, but confidence soars.
Pound appreciates vs. Euro
– EZ private sector expands.
GBP/USD down 100 pips
– UK election concerns weigh on ‘Cable’.
‘Aussie’ up on RBA decision
– Australian interest rate remains at 2.25%.
Sterling
The Pound performed well against the some of the majors yesterday courtesy of a better-than-expected UK service sector report from Markit Economics. The headline services PMI printed at 58.9 for March, smashing economists’ forecasts of 57.0. The upbeat score, which was the best since last August, boosted demand for Sterling because it suggested that British GDP growth could have accelerated from 0.6% to 0.7% in the first quarter of the year. The sanguine result was primarily driven by new business growth and expectations that output will rise over the next 12 months.
But it was not all plain sailing for the Pound yesterday because the Bank of England released a report on financial policy intimating that policymakers are worried about the UK’s titanic current account deficit. The report revealed officials are concerned that if the deficit were to swell further, market sentiment towards Britain could begin to deteriorate.
Euro
The Pound to Euro exchange rate strengthened by around 70 pips yesterday thanks to the strong British service sector report, which accounts for over 70% of total economic output in the United Kingdom.
Across the channel in the Eurozone private sector data also came in better-than-anticipated, with output rising from 53.7 to 54.0 in March, leaving the currency bloc on course for economic expansion of around 0.3% in the first three months of the year. In a separate piece of encouraging news for the 19-nation bloc Eurostat announced that disinflation at factory gates slowed from -3.5% to -2.8% in February. It now looks as if the currency bloc could emerge from disinflation by the midpoint of the year.
US Dollar
Despite decent domestic data, the Pound succumbed to a -100 pip decline against the US Dollar yesterday. The Pound suffered as analysts started discussing the possible fallout from next month’s election: that a minority government could destabilise economic growth and deter investment in the country. It seems that markets reacted to a note from JP Morgan recommending traders sell Sterling against the ‘Greenback’. This helped the US currency recover from the losses it suffered last Friday in response to the downbeat US non-farm payroll report.
Later this evening we will hear the Federal Reserve’s latest musing on monetary policy; if officials strike a hawkish tone then the ‘Greenback’ could strengthen further but if policymakers make use of cautionary rhetoric then we could see ‘Cable’ start inching closer to key psychological resistance.
Canadian Dollar
Sterling initially rallied against the Canadian Dollar yesterday morning in reaction to the robust British services PMI print, however, the Pound was unable to hold above a technical support level and subsequently bounced lower during the afternoon. Crude oil prices remained low, so there was no real motivation behind the ‘Loonie’s’ surge apart from technical trading patterns.
Australian Dollar
Sterling shed -160 pips against the Australian Dollar yesterday morning as markets reacted to the Reserve Bank of Australia’s decision to leave rates on hold at 2.25%. Prior to the release analysts had been split down the line as to whether the RBA was going to stick or twist in April. Although the Australian Dollar benefitted from the announcement, the RBA did keep the door open to further reductions in interest rates in the future, which means that the ‘Aussie’ will likely come under pressure ahead of subsequent central bank announcements.
New Zealand Dollar
The Pound softened by around half a cent against the New Zealand Dollar yesterday as economic sentiment in the Asia/Pacific region was bolstered by the RBA’s decision not to loosen monetary policy. This helped assuage fears – however minor they may have been – that the Reserve Bank of New Zealand could opt to slash rates at some point this year.
Data Released Today
10:00 EUR Euro-Zone Retail Sales (YoY) (FEB) Medium
19:00 USD U.S. Fed Releases Minutes from March 17-18 FOMC Meeting High