Sterling
The Pound strengthened versus most of the majors yesterday as data showed that manufacturing output improved more-than-anticipated in January. The factory output PMI index rose from 51.9 to a three-month high of 52.9 thanks to another strong month of robust domestic demand. Disappointingly though, the report showed that export orders were lacking and firms were forced to cut back on jobs.
This morning’s PMI print is expected to show that the construction sector grew at a sturdy pace of 57.5 last month, however, because the industry only accounts for around 7% of British GDP the data may have only a limited impact on the Sterling exchange rate.
Euro
The Pound rallied by around a cent against the Euro yesterday as British manufacturing growth outpaced that of the Eurozone.
The European factory output index came in at 52.3, down from 53.2 previously. The most alarming element of the report was the prices paid sub-index, which signalled that prices fell at the fastest rate for a year in January. Despite Eurozone CPI rising from 0.2% to 0.4% last week, analysts were concerned that disinflationary pressures in the manufacturing bloc could be emblematic of weak price growth in the rest of the Eurozone economy. Indeed, the continued plunge in oil prices is tipped to drive down CPI in most developed economies.
Today’s agenda sees German and Eurozone unemployment figures. The German labour market is expected to have lost -8,000 jobs but the jobless rate is anticipated to remain steady. The Eurozone unemployment rate is forecast to hold at 10.5%.
US Dollar
‘Cable’ appreciated by almost two cents yesterday to strike a new two-week high as the already-small choir of March Federal Reserve rate hike singers lost a few more members.
The US Dollar depreciated versus Sterling in reaction to a downbeat ISM manufacturing print of 48.2, which missed forecasts of 48.4 and marked the fourth straight month of contraction within the sector. The lowly score was especially damaging to the ‘Greenback’ because it was the labour market that suffered the most, with the sub-index for employment plummeting to a six-year low of 45.9. This, analysts reasoned, was a sign that Friday’s key non-farm payroll report may also disappoint – and subsequently bets of a Fed rate hike in March were dashed.
Canadian Dollar
Sterling rebounded from a six-month low versus the Canadian Dollar yesterday as a sharp jump in GBP/USD pushed the Pound higher against most of the majors.
The commodity-correlated ‘Loonie’, which shrank by nearly two cents against the Pound, was also hit by fresh falls in the value of crude oil. Oil plunged -6% as hopes of a deal between OPEC members to curb production levels were quashed by a statement suggesting an emergency meeting would not be held. Weak manufacturing data from China also worked against crude and undermined the Canadian Dollar.
Australian Dollar
The Pound strengthened by around 130 pips against the Australian Dollar during the London session yesterday as traders reacted to a contractionary Chinese manufacturing PMI score of 49.4, which undershot analysts estimates of 49.6. The bad news out of the world’s second largest economy sent traders into risk aversion mode and this worked against the ‘Aussie’ ahead of the Reserve Bank of Australia’s February interest rate announcement.
New Zealand Dollar
The Pound gained some ground against the New Zealand Dollar yesterday on negative risk sentiment. But the ‘Kiwi’ clawed back most of its losses during the evening as traders put their faith in bets that the Federal Reserve would hold off on further interest rate hikes for the time being.
Data Released
08:55 EUR German Unemployment Rate s.a. (JAN) High 6.3%
09:30 GBP Markit/CIPS UK Construction PMI (JAN) Medium 57.5
10:00 EUR Euro-Zone Unemployment Rate (DEC) Medium 10.5%
21:45 NZD Unemployment Rate High 6.1%