Headlines
UK Construction PMI rises to 57.3 –
Service sector report on tap.
GBP/EUR gains 70 pips –
ECB policy statement due, threat of further easing.
‘Cable’ hits 80-day low –
But rebounds on soft factory data.
Australian GDP slows in Q2 –
But GBP/AUD fails to hold gains.
Sterling
It was reported yesterday that British construction output rose at a pace of 57.3 in August, up from 57.1 in July but lower than analysts’ forecasts of 57.5. An acceleration in commercial work and housebuilding contributed to the slight uptick in activity but Sterling was unmoved by the result because construction only accounts for around 7% of British GDP. However, this morning’s service sector PMI report, which accounts for around 70% of domestic output, is liable to have a much bigger impact on demand for the Pound. Markets are primed for a score of 57.7, which could give the Pound a little boost, but if the PMI comes in stronger then Sterling could surge. Conversely, if the report disappoints then the Pound has the potential to slide.
Euro
The Pound to Euro exchange rate rebounded by around 70 pips yesterday but remains six cents down on where it stood less than a fortnight ago.
The latest opinion polls in Greece told analysts very little about how the electorate will vote in the upcoming snap election. Low participation in the polls makes it almost impossible to predict the outcome but it is entirely possible that whoever comes out ahead will need to form a coalition, which could prove difficult if support for the Neo-Nazi Golden Dawn party remains strong. If a second round of elections is required there is every chance that Greece will not be able to enact its latest economic reforms in time for the Hellenic Republic’s review with its creditors. This would prove catastrophic to the Greek economy as it could delay the release of the next tranche of financial aid.
The hot topic on the agenda today is the European Central Bank’s latest interest rate announcement and the prospect of enhanced bond-buying. ECB President Mario Draghi is not expected to announce any new measures this afternoon but there is a very real chance that he could cite the Chinese crisis as reason to consider upping the bank’s asset purchasing target in the future. The single currency could find itself depreciating if this proves to be the case.
US Dollar
Sterling sunk to a fresh 80-day low against the US Dollar yesterday but demand for the ‘Greenback’ softened during the afternoon when US factory orders came in less than half as strongly as markets had anticipated.
Transportation equipment orders rose 5.5% but the overarching factory index slowed from 2.2% to 0.4%, underwhelming forecasts of 0.9%, as the recent appreciation in the Dollar weighed on export numbers. The latest ADP employment change indicator also disappointed, with a score of 190,000 compared to the median market consensus of 200,000. The subdued labour market figure was seen to suggest that Friday’s non-farm payroll report will not give traders a bullish enough signal to suggest that the Federal Reserve will raise interest rates in September.
Canadian Dollar
A surprise 4.7 million barrel rise in US crude oil inventories sent the Canadian Dollar lower by around 60 pips against the Pound yesterday as the value of the ‘black gold’, which is Canada’s most lucrative export, continued to stutter. With Saudi Arabia and Iran continuing to flood the market with oil analysts are forecasting further crude devaluations and subsequently the ‘Loonie’ looks set to follow oil lower.
Australian Dollar
The Pound to Australian Dollar exchange rate rallied by around 80 pips yesterday morning thanks to a dud Australian GDP report. The data showed that growth in Australia slowed from 0.9% to 0.2% in the second quarter, which underwhelmed expectations of 0.4% and further increased the probability of the Reserve Bank of Australia cutting interest rates again over the next few months.
However, the ‘Aussie’ managed to claw back most of its losses later on in the day.
New Zealand Dollar
Sterling remained flat against the New Zealand Dollar yesterday amid a mood of global risk aversion, which stopped the ‘Kiwi’ gaining on a positive dairy auction result. The price of New Zealand’s most important export rose by 10.9% at the latest dairy auction, marking the second consecutive rise at auction but it was not enough to lift the Antipodean currency.
Data Released Today
09:30 GBP Markit/CIPS UK Services PMI (AUG) Medium 57.7
10:00 EUR Euro-Zone Retail Sales (YoY) (JUL) Medium 2.0%
14:30 EUR ECB President Mario Draghi Holds Press Conference High
15:00 USD ISM Non-Manufacturing Composite (AUG) High 58.4