Sterling
Weaknesses in the global economy seeped through to the British manufacturing sector last month, driving the February factory output PMI down to its lowest level in 34 months. Exports, which have been struggling for some time now, softened as global economic woes weighed on demand. But perhaps more concerning was data pertaining to domestic demand, which also slumped causing firms to cut prices and lay off workers. The PMI printed at 50.8, barely above the 50.0 mark that separates growth from contraction and well below analysts’ forecasts of 52.3.
Surprisingly, the Pound did not suffer too many significant losses following the downbeat data, having depreciated markedly already over the last eight days.
Euro
The Pound to Euro exchange rate strengthened by around a third of a cent yesterday as traders overlooked the downbeat UK manufacturing data and continued pricing in further stimulus from the European Central Bank.
ECB President Mario Draghi told reporters yesterday there are ‘no limits’ to how far the bank is willing to deploy instruments in order to help bring inflation back towards 2.0%. The recent dip in CPI to -0.2% has put added pressure on policymakers and that pressure has now started to drive down demand for the single currency ahead of next week’s policy meeting.
In other news German unemployment remained at 6.2%, Eurozone unemployment sank from 10.4% to 10.3% and Italian GDP for 2015 was revised up from 0.6% to 0.8%.
US Dollar
Sterling also managed to eke out gains against the US Dollar yesterday as Federal Reserve rate hike bets were dealt a blow by dovish remarks from Fed policymaker William Dudley.
Dudley said that risks to the US economy and inflation outlook were ‘tilted to the downside’ and mentioned that he was ‘somewhat less confident’ than he was before that the consumer price index will rise towards the 2.0% target this year. The dovish statement sent Fed rate hike bets back and led to a minor depreciation in the US Dollar.
The latest report on the US manufacturing industry came in at 49.5, beating expectations of 48.5 but the ‘Greenback’ found no joy from the print because the index remained in contractionary territory.
Canadian Dollar
The Pound stumped to a daily loss of over -100 pips against the Canadian Dollar yesterday as the ‘Loonie’ was boosted by an unexpectedly strong growth reading.
The Canadian GDP report showed annualised expansion of 0.8% in the fourth quarter, which smashed forecasts of 0.0% stagnation and sent the ‘Loonie’ higher.
Australian Dollar
The Australian Dollar also benefitted from a decent growth report yesterday, rallying by almost two cents against the Pound in response.
Analysts were primed for quarterly expansion of 0.4% and an annual growth print of 2.5%. So, naturally, they were pleasantly surprised to see a quarterly score of 0.6% and a yearly increase of 3.0% when the official stats were released.
New Zealand Dollar
Sterling lost out on around a cent against the New Zealand Dollar yesterday due to a much welcome rise in New Zealand dairy prices. The latest GlobalDairyTrade auction yielded a 1.4% increase in farmer payouts, breaking a run of four consecutive price cuts at auction. Because dairy products are integral to the New Zealand economy, being the most lucrative export, the ‘Kiwi’ Dollar responded positively to the figures.
Data Released
09:30 GBP Markit/CIPS UK Construction PMI (FEB) Medium 55.5
13:15 USD ADP Employment Change (FEB) Medium 185k