Headlines
• UK construction sector remains strong –
Service sector PMI on tap.
• GBP/EUR at 70-day high –
Draghi hints at stimulus.
• GBP/USD flat on the day –
US factory orders decline.
• New Zealand unemployment rises –
Dairy prices slump.
Sterling
The Pound remained fairly well-bid versus its major currency peers yesterday as British construction printed at 58.8 for October. Although the PMI score marked a slight slowdown from September’s 59.9, markets were buoyed by yearly high figures for employment growth and new orders. Taken with Monday’s impressive manufacturing PMI result the construction numbers point towards economic growth of around 1% at the beginning of the fourth quarter.
Of course, we are still waiting for October’s service sector data, which accounts for a grand majority of UK economic output, so it is difficult to accurately predict how well the economy has performed so far in Q4. This morning’s services report is tipped to show an acceleration of output from 53.3 to 54.5 but it is not out of the question to hope for a reading of 55.0 or above, in light of the massive surge in Monday’s manufacturing index.
Euro
The Pound appreciated slightly against the Euro yesterday morning as markets looked favourably on the UK currency following the latest round of British PMI data. The slight downtick in the headline construction index was not enough to derail Sterling because investors were generally impressed with the details of the report.
And the Pound to Euro exchange rate jumped higher by a further 50 pips during the New York session in response to a dovish statement from European Central Bank President Mario Draghi. The ECB Chief stated that he was going to review the level of monetary stimulus appropriate to drive Eurozone inflation back up towards the bank’s 2.0% target in December and mentioned that he was ‘willing and able to use all instruments available’.
US Dollar
Sterling initially lost ground against the ‘Greenback’ yesterday, with GBP/USD shedding half a cent during the London session. However, the Pound clawed back its losses during the afternoon as traders reacted to a weaker-than-anticipated September US factory orders print of -1.0%, which was accompanied by a downward revision to August’s index from -1.7% to -2.1%.
US data this afternoon is anticipated to show that ADP employment growth slowed from 200,000 to 180,000 in October, that the US trade balance shrunk from -$48.3 billion to -$41.0 billion in October and that service sector output remained positive at 56.5 last month. If the results print as expected then it is possible that we could see the US Dollar strengthen across the board but if output is seen to slow then December rate hike bets could deteriorate ahead of Friday’s key non-farm payrolls report.
Canadian Dollar
The Pound to Canadian Dollar exchange rate tumbled by around half a cent yesterday evening thanks to a sharp rise in the value of the North American nation’s most lucrative export.
Crude oil prices surged almost 4% yesterday as disruptions in Brazil, where the largest workers union has been on strike since Sunday, and Libya, where authorities have called force majeure at the Zuetina Port thus cutting the North African nation’s oil exports by 100,000 barrels a day, reduced fears of oversupply in the market.
Australian Dollar
Sterling softened by around half a cent against the Australian Dollar yesterday morning as traders breathed a sigh of relief at the Reserve Bank of Australia’s decision to leave interest rates on hold at 2.00% during November.
However, RBA Governor Glenn Stevens noted that ‘the outlook for inflation may afford scope for further easing of policy’ and therefore the prospect of a future rate cut is likely to weigh on the high-yielding ‘Aussie’ over the next few weeks and months.
New Zealand Dollar
Sterling rallied by over 300 pips against the New Zealand Dollar yesterday to strike a near-monthly high as downbeat labour market data caused traders to up their Reserve Bank of New Zealand rate cut bets. The headline unemployment rate rose from 5.9% to 6.0% but markets were most concerned by a -0.4% quarterly dip in the jobs market.
The ‘Kiwi’ Dollar was also impacted by a -7.4% dip in the average price of New Zealand’s dairy products at an auction, which boded badly for the Antipodean nation’s export sector.
Data Released Today
09:30 GBP Markit/CIPS UK Services PMI (OCT) Medium 54.5
13:15 USD ADP Employment Change (OCT) High 180K
13:30 USD Trade Balance (SEP) Medium -$41.00b
15:00 USD ISM Non-Manufacutring Composite (OCT) High 56.5