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UK manufacturing hits three-month low
– Construction PMI on tap.
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German inflation misses target
– Eurozone CPI due today.
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‘Cable’ falls to new eight-month low
– Risk aversion grips markets.
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Commodity bloc sink
– Chinese output weighs on risk appetite.
Sterling
The first major UK data release of 2016 showed that manufacturing output slowed to a three-month low of 51.9 in December as new orders came in at the slowest pace for five years. The PMI report weighed on demand for the Pound because traders had been primed for a higher reading of 52.8. However, on a quarterly basis the manufacturing sector could still boost Q4 GDP because the average PMI score in the final three months of the year was 53.3, up from 51.8 in Q3.
Later today British construction activity for December is forecast to print at 56.0, marking a steady improvement on November’s score of 55.3.
Euro
Sterling managed to rally by around half a cent against the Euro yesterday afternoon as markets responded to a weaker-than-anticipated German consumer price index print of 0.3%. Analysts had pencilled in a score twice that high of 0.6% and subsequently demand for the single currency softened as investors reduced their expectations for this morning’s Eurozone inflation index. The median market consensus is for a print of 0.4%, up from 0.2% previously, but with prices rising less-than-anticipated in the currency bloc’s largest economy there is every chance that the figure could disappoint.
Also on the agenda today is a German labour market report, which is tipped to confirm that the German jobless rate remained at 6.3% in December and should have only a limited impact on GBP/EUR.
US Dollar
Sterling depreciated by around half a cent yesterday to reach yet another eight-month low.
Although the headline US ISM manufacturing index fell deeper into contraction with a score of 48.2 in December, which undershot expectations of 49.0 and marks a decline on November’s 48.6, the ‘Greenback’ was able to push ahead against the Pound as weak Chinese data led to a rise in risk aversion. The latest downbeat manufacturing figures from across the globe increased the appeal of the US Dollar – the world’s premier safe haven currency – and subsequently GBP/USD was unable to take advantage of the six-year low US ISM report.
Canadian Dollar
Just as the US Dollar was spared losses against the Pound by the risk-killing Chinese manufacturing report, Sterling was spared losses against the Canadian Dollar for the exact same reason.
Analysts reacted to the latest Chinese factory output report, which printed in contractionary territory at 48.2, by piling into the traditional safe havens and selling currencies with larger exposure to risk trends. Because the ‘Loonie’ is heavily reliant on commodity exports, especially crude oil, the Canadian Dollar suffered when the disappointing Chinese figures hit newswires. GBP/CAD grew by around 90 pips during yesterday’s session.
Australian Dollar
The Pound to Australian Dollar exchange rate rallied by over 250 pips yesterday to recover from a six-month low as downbeat Chinese manufacturing data hurt risk sentiment and sent the commodity-sensitive ‘Aussie’ spiralling lower across the board. China is Australia’s largest export market and subsequently underwhelming Chinese data often has a negative impact on the Antipodean currency’s fortunes.
New Zealand Dollar
Sterling appreciated by around 250 pips against the New Zealand Dollar yesterday as investor’s appetite for riskier assets such as the ‘Kiwi’ dipped in response to the latest decline in manufacturing output out of China.
Data Released
08:55 EUR German Unemployment Rate s.a. (DEC) High 6.3%
09:30 GBP Markit/CIPS UK Construction PMI (DEC) Medium 56
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (DEC) High 0.4%