Sterling
Sterling rebounded strongly versus most of the majors yesterday in anticipation of a sturdy service sector score later this morning.
Construction output remained at a 10-month low of 54.2 in February, it was reported yesterday, but the sector only contributes around 6% of GDP and subsequently the result had little impact on Sterling sentiment. Investors will be paying much more attention to this morning’s services PMI, which is tipped to accelerate from 52.7 to 53.4.
The Pound managed to bounce back against most of the majors yesterday but the UK currency looks susceptible to further declines if the services report does not match market expectations.
Euro
The Pound rebounded by around half a cent against the Euro yesterday as profit takers jumped in to take advantage of the 16-month low that GBP/EUR struck on Friday afternoon.
The Pound’s precarious position was highlighted by ratings agency Standard & Poor’s who confirmed yesterday that they would likely strip Britain of its coveted triple-A credit rating if the nation votes to leave the European Union later on in the year. Britain has retained an AAA rating with S&P since 1978 and as such the move would mark a significant blow to the Chancellor George Osborne’s reputation.
Data yesterday showed that Eurozone unemployment came in at 10.3% in February and data this morning is expected to confirm that retail sales volumes increased 1.9% in February.
US Dollar
Downbeat domestic data helped the Pound to a 60-pip daily gain against the ‘Greenback’ yesterday. The US Dollar lost out as durable goods orders shrunk -2.8% and factory orders plunged -1.7% while Sterling garnered support ahead of this morning’s UK service sector PMI.
Looking ahead it seems possible that we could see GBP/USD trend higher as long as the Federal Reserve sticks to its guns and continues on a cautionary path. If policymakers deviate from last week’s dovish statement from Chairwoman Janet Yellen then it could derail Sterling and put some pressure on ‘Cable’.
Canadian Dollar
Sterling rebounded by just under a cent against the Canadian Dollar yesterday to recover from Friday’s 11-month low.
It was a mixture of profit taking and anticipation of a sturdy service sector score that sent GBP/CAD surging, which means that anything below target in this morning’s British tertiary sector print could easily push the Pound back into contractionary territory.
Australian Dollar
The Pound to Australian Dollar exchange rate rose by over two cents yesterday. Following a dreadful session on Friday, which saw GBP/AUD touch a 15-month low, Sterling roared back into life as traders locked in profit. The catalyst for Sterling’s rebound was a disappointing Australian retail sales print of 0.0%, which undershot expectations of 0.4%. The ‘Aussie’ was also hurt by a sharp -9.0% contraction in February building approvals, which followed an even sharper drop of -14.5% in January.
New Zealand Dollar
Sterling racked up a daily appreciation of around two cents yesterday as markets reacted to the ‘Panama Papers’ leak.
The ‘Panama Papers’ are a collection of over 11.5 million documents that allege to reveal how the world’s elite use a network of trusts and companies to hide their colossal wealth for the purpose of tax avoidance. Although the implications of the leak are not yet clear it is believed that New Zealand is one of the tax havens that prime ministers and high profile politicians have been using to limit their tax liabilities. The news has had an understandably negative impact on the ‘Kiwi’ Dollar.
Data Released
09:30 GBP Markit/CIPS UK Services PMI (MAR) Medium 53.5
10:00 EUR Eurzone Retail Sales (YoY) (FEB) Medium 1.9%
15:00 USD ISM Non-Manufacturing Composite (MAR) High 54.1