Sterling
Demand for the Pound softened yesterday as downbeat UK construction data poured more cold water on hopes of British growth accelerating in the second quarter. Following on from April’s three-year low manufacturing score, the PMI for construction printed at its weakest level since June 2013 yesterday. The index slumped from 54.2 to 52.0 as new orders stagnated and clients suspended spending ahead of the EU referendum in June.
If this morning’s service sector report – by far the most important of the private sector indicators – completes a hat trick of dud prints then we could see Sterling come under significant selling pressure.
Euro
The Pound to Euro exchange rate tumbled over half a cent yesterday as markets punished the single currency for the recent downturn in UK economic data.
Decelerating UK construction data weighed on the Pound ahead of today’s key service sector report, which is tipped to print at 53.5. If the figure matches market expectations then it is likely that Sterling could recover slightly versus the Euro. But if the report underwhelms the market consensus then the potential for GBP/EUR to decline would be fairly high.
In other news, the European Central Bank (ECB) announced that it will no longer be printing €500 notes, due to concerns that they were helping to facilitate illicit activities.
US Dollar
‘Cable’ depreciated by just under half a cent yesterday as markets reacted to the soft UK construction activity report.
Data stateside showed that factory orders rebounded from a -1.7% contraction in February with a 1.1% expansion in March. The upbeat manufacturing figures complemented a surprisingly strong service sector ISM print of 55.7, which outpaced estimates of 54.7. Some commentators noted that the robust figures were proof that the Federal Reserve may yet raise rates next month. However, with the ‘Brexit’ vote falling just days after the Fed’s meeting, the prospect of a June hike does not look strong.
Canadian Dollar
Sterling strengthened against the Canadian Dollar yesterday thanks to some awful Canadian trade figures and fears that a wildfire could spread through the nation’s oil sands region.
Data showed that the trade deficit stretched to a record high of -C$3.4 billion in March due to an unexpectedly sharp dip in exports. Exports could continue to soften going forward if fires in the oil sands region do not recede and production levels are cut.
Australian Dollar
The Pound held onto its recent gains against the Australian Dollar yesterday following the Reserve Bank of Australia’s (RBA) decision to cut interest rates earlier in the week. GBP/AUD is currently trading around three cents stronger than it was this time last week. The downbeat UK PMI figures have curtailed Sterling’s gains, but the downtrodden ‘Aussie’ was unable to start a recovery.
New Zealand Dollar
Sterling jumped higher by around a cent against the New Zealand Dollar yesterday as investors piled out of the ‘Kiwi’ in response to some dreadful domestic labour data. The New Zealand unemployment rate rose unexpectedly from 5.4% to 5.7% and the average annual wage growth indicator slid to its lowest level since June 1994. Markets drove NZD lower following the report, as Reserve Bank of New Zealand rate cut speculation proliferated.
Data Released
09:30 GBP Markit/CIPS UK Services PMI (APR) Medium 53.5