Headlines
UK construction decelerates in July –
Service sector PMI on tap.
RBS sale sparks foreign cash inflows –
Boosts Sterling.
GBP/USD fluctuates in tight range –
Investors try to gauge hike expectations.
RBA leaves rates on hold –
‘Aussie’ rallies on change in rhetoric.
Sterling
The Pound softened slightly against the majors yesterday in the aftermath of a lower-than-expected UK construction PMI report but demand for Sterling surged during the afternoon as investors kept an eye out for foreign buyers of Royal Bank of Scotland (RBS) shares.
The construction PMI decelerated from a four-month high of 58.1 in June to 57.1 in July due to a slowdown in residential building projects. However, the construction industry only accounts for around 7% of total economic output and therefore market sentiment will likely be effected more by this morning’s UK service sector report, which accounts for over 70% of GDP. The services PMI is expected to print robustly at 58.0.
The government began its sale of RBS yesterday with a £2.1 bullion chunk at a cut-price of 330p a share, which analysts said could attract interest from foreign buyers and subsequently prop-up the Pound.
Euro
The Pound to Euro exchange rate declined by around a quarter of a cent yesterday morning when the latest British construction numbers were released but traders quickly shrugged off the slight dip and geared themselves up for this morning’s service sector report.
A strong print in this morning’s PMI could set the Pound up for further gains and the follow-through could take place on Thursday when the Bank of England releases its latest inflation report. Analysts predict that the recent surge in wage growth could persuade policymakers to up their GDP and inflation projections for the second half of the year. If the central bank literature strikes a hawkish tone there is a good chance that Sterling could strike fresh seven-year highs versus the single currency.
US Dollar
‘Cable’ has been stuck in a narrow range for the past 20 days and, despite volatility, the pair did not manage to break out during yesterday’s session.
GBP/USD fluctuated between technical support and resistance levels as traders continued to speculate over the possibility of rate rises in both the UK and the US. This morning’s UK services report could push BoE rate hike bets and so could Thursday’s inflation report. However, Federal Reserve projections could improve on Friday if the latest US non-farm payrolls report comes in positively for July.
Canadian Dollar
The Pound to Canadian Dollar exchange rate remained close to a near-seven-year high yesterday as currency markets showed no sign of letting up on the embattled commodity currency.
Crude oil prices stabilised following the rout on Monday but demand for the ‘Loonie’ did not improve. Data yesterday showed that domestic manufacturing output decelerated from 51.3 to 50.8 in July, which also weighed on the Canadian Dollar. If British data releases impress over the next few days we could easily see Sterling strike more multi-year highs against the ‘Loonie’.
Australian Dollar
The Australian Dollar was revitalised early yesterday morning by a statement from the Reserve Bank of Australia. RBA Governor Glenn Stevens removed talk of a necessary depreciation in the domestic currency and noted that the ‘Aussie’ had ‘adjusted to significant falls in commodity prices’. The Australian Dollar rocketed higher in reaction to the statement as investors priced in the possibility that the central bank would leave interest rates at the current 2.00% for a little bit longer than anticipated.
GBP/AUD declined by around -350 pips following the announcement, which also saw the RBA leave rates unchanged in August.
New Zealand Dollar
The Pound surged against the New Zealand Dollar yesterday afternoon in response to a sharp -9.3% decline in NZ dairy prices at the latest auction. The steep fall marked the tenth consecutive month of falling prices in the nation’s most important export market. GBP/NZD rose by around two cents in response to the auction as traders upped their bets that the Reserve Bank of New Zealand will loosen monetary policy further over the next few months.
Data Released Today
09:30 GBP Markit/CIPS UK Services PMI (JUL) Medium 58
10:00 EUR Euro-Zone Retail Sales (YoY) (JUN) Medium 2.0%
13:15 USD ADP Employment Change (JUL) Medium 210K
13:30 USD Trade Balance (JUN) Medium -$42.90B
15:00 USD ISM Non-Manufacutring Composite (JUL) High 56.2