Headlines
UK construction PMI impresses –
Confidence at 9-yr high.
British service sector report on tap –
Strong figure could boost Sterling.
GBP/EUR hits fortnightly low –
Euro rallies 150 pips.
‘Cable’ appreciates 120 pips
– Technical barrier broken.
Sterling
British economic sentiment received a little bit of a boost yesterday when May’s UK construction index printed better-than-anticipated. In contrast to Monday’s disappointing manufacturing report, the latest construction PMI rose from 54.2 to 55.9 reflecting a surge in confidence following the smooth general election at the start of last month. Firms, who had been primed for a nail bitingly close vote, were cheered by the Conservative’s majority victory and subsequently optimism within the industry rose to a nine-year high as the threat of a sustained period of political uncertainty was removed. The headline result was also boosted by a five-month high surge in job creation.
The Pound rallied slightly in reaction to the data but Sterling could appreciate more strongly if this morning’s more important service sector PMI also beats the median market forecast. Traders expect the ecostat to come in at 59.2 but anything higher than that has the potential to bolster demand for the Pound.
Euro
The Pound to Euro exchange rate sunk -150 pips to a fortnightly low during yesterday’s session as sanguine Eurozone inflation figures and progress in Greek debt negotiations boosted the appeal of the single currency.
Compared to forecasts of 0.2%, Eurozone CPI rose from 0.0% to 0.3% as prices within the service sector surged but cheap oil continued to weigh. This was the first time in six months that consumer prices increased. Core Eurozone inflation, which does not include volatile food and energy prices, also impressed at 0.9% compared to predictions of 0.7%.
However, markets were most cheered by news that Greek Prime Minister Alexis Tsipras submitted a 47-page ‘comprehensive proposal’ to the nation’s creditors in an effort to secure much-needed financial assistance. It remains to be seen whether institutional leaders in Europe will accept the Greek government’s proposal but demand for the Euro rocketed in response to the news story as investors reacted to the possibility of an agreement, which would likely send European assets soaring.
US Dollar
The morning’s upbeat UK construction data helped drive Sterling through technical resistance levels against the US Dollar yesterday, ultimately leaving ‘Cable’ 120 pips higher on the day.
The Pound was also helped by a robust 68,100 rise in UK mortgage approvals whilst the ‘Greenback’ was hurt by a surprise -0.4% contraction in US factory orders. The technical breakthrough yesterday paves the way to further Sterling gains if this morning’s service sector report points to sturdy economic growth in the second quarter. Britain’s dominant services industries account for over 70% of total economic output and subsequently the tertiary sector report is liable to have a more significant impact on the Pound than either Monday’s manufacturing or Tuesday’s construction reports.
Canadian Dollar
Decent British data helped drive the Pound higher against the Canadian Dollar yesterday but GBP/CAD’s gains were trimmed from 100 pips to 20 pips during the North American session as a rise in crude oil prices bolstered the appeal of the commodity-correlated ‘Loonie’.
Australian Dollar
Sterling shrunk -200 pips to a fresh weekly low against the Australian Dollar yesterday as markets readjusted their ‘Aussie’ Dollar valuations following the Reserve Bank of Australia’s latest policy announcement. The RBA announced that it was leaving interest rates unchanged at 2.00% in May, which sent the Antipodean currency surging even though it was predicted by the majority of market players beforehand.
New Zealand Dollar
The Pound remained close to four-year highs against the New Zealand Dollar yesterday as sanguine domestic data supported Sterling. The RBA announcement sent the ‘Kiwi’ sliding against the Australian Dollar, which in turn weakened the New Zealand Dollar against its other most-traded currency peers.
Data Released Today
09:30 GBP Markit/CIPS UK Services PMI (MAY) Medium 59.2
10:00 EUR Euro-Zone Unemployment Rate (APR) Medium 11.2%
10:00 EUR Euro-Zone Retail Sales (YoY) (APR) Medium 2.0%
12:45 EUR European Central Bank Rate Decision (JUN 3) High 0.05%
15:00 USD ISM Non-Manufacutring Composite (MAY) High 57.0