Headlines
• UK manufacturing PMI hits 16-month high –
Smashes market expectations of 2-year low.
• GBP/EUR hits 70-day high –
On decent UK factory output figures.
• GBP/USD flat on the day –
US manufacturing slows, factory labour down.
• New Zealand labour data on tap –
Unemployment tipped to rise to 6%.
Sterling
A PMI report detailing a shock increase in manufacturing output during October gave the Pound a sizable boost yesterday morning. Sterling rallied following the factory output report, which saw the index rise from an upwardly revised 51.8 to a 16-month high of 55.5. The upbeat score was of particular interest to currency traders because traders had been primed for the index to slump to a two-year low of 51.3. One swallow does not a summer make and it is impossible to tell whether the manufacturing sector will maintain growth of this speed but if it does analysts posit that the British economy could double the third quarter’s 0.5% growth score with a figure in the region of 1.0%.
The report, which featured encouraging yearly high figures for export orders and jobs growth helped drive Sterling’s trade-weighted index to a 10-week high yesterday morning.
Euro
The Pound to Euro exchange rate struck a fresh 70-day high yesterday morning when the surprisingly strong UK manufacturing PMI hit newswires but demand for Sterling cooled off during the afternoon and GBP/EUR settled back where it began.
Data out of the Eurozone showed that strong factory growth numbers in Italy (54.1), the Netherlands (53.7) and Ireland (53.6) helped drive manufacturing output higher from 52.0 to 52.3 during October. The report did little to alter trading patterns involving the single currency as it was not deemed significant enough to impact European Central Bank stimulus bets.
US Dollar
It was a similar story for the Pound against the US Dollar. Sterling initially rallied by around 60 pips when the upbeat British manufacturing PMI was released but as the day went on the Pound’s gains eroded and ‘Cable’ softened back towards its opening levels.
In the United States the Institute of Supply Management (ISM) – who are considered the benchmark in measuring US factory output – announced that manufacturing activity remained slow in October. The ISM slowed from 50.2 to 50.1 as the sub-index for employment plunged to a six-year low of 47.6.
Manufacturing does not contribute as much as services to the US economy and subsequently it would be presumptuous to suggest that the soft employment figure will lead to weak US non-farm payrolls print on Friday but nevertheless investors were spooked by the numbers. If Friday’s NFP prints below 150,000, as it has done for two months on the trot, then the ‘Greenback’ could weaken considerably as rate hike bets are pushed back.
Canadian Dollar
The Canadian Dollar is another currency that Sterling racked up impressive morning gains against yesterday that it was unable to maintain.
The Sterling to Canadian Dollar exchange rate strengthened by around 120 pips to strike a five-day high on the back of the morning’s strong UK factory output numbers. But the commodity-sensitive ‘Loonie’ managed to claw back its losses during the afternoon even though Canadian manufacturing was reported to have contracted in October, with a score of 48.0 down from 48.6 in September.
Australian Dollar
The Pound fell from a monthly high against the Australian Dollar yesterday as volatility ruled the day ahead of this morning’s interest rate announcement from the Reserve Bank of Australia. Investors were expecting the RBA to leave rates on hold at 2.00% but were well aware that a surprise rate cut could damage demand for the high-yielding ‘Aussie’.
Sterling appreciated by around half a cent against the New Zealand Dollar yesterday as anxious traders sold the ‘Kiwi’ ahead of this evening’s labour market report, which is tipped to reveal that unemployment rose from 5.9% to 6.0% in the third quarter.
Data Released Today
09:30 GBP Markit/CIPS UK Construction PMI (OCT) Medium 58.8
15:00 USD Factory Orders (SEP) Medium -0.9%
21:45 NZD Unemployment Rate (3Q) High 6.0%
21:45 NZD Employment Change (QoQ) (3Q) Medium 0.4%