Sterling
The Pound edged lower yesterday against most of its major trading partners, as traders reacted to another underwhelming private sector PMI report.
Following on from the three-year lows in manufacturing and construction earlier in the week, the April service sector PMI printed at a three-year low of 52.3. Firms blamed softer demand on the upcoming EU referendum, which they said was causing customers to hold back on new orders. Taken as a whole, the abysmal multi-year low private sector figures for April suggest that the British economy could see GDP decelerate from 0.4% to 0.1% in the second quarter of 2016.
Euro
Strangely, Sterling managed to rally by around a cent against the single currency yesterday even though domestic data printed terribly.
The service sector accounts for over 75% of UK economic output and subsequently it is seen as by far the most important PMI indicator. The Pound weakened against most following the services report, as investors started mulling over the possibility of further accommodative policy from the Bank of England (BoE). However, the Pound to Euro exchange rate remained insensitive to such moves and actually appreciated.
It seems the Euro suffered in reaction to policymakers at the European Central Bank (ECB) reiterating their desire to use all available tools to bring inflation back up towards the 2.0% target.
US Dollar
‘Cable’ depreciated by around half a cent yesterday as traders geared up for this afternoon’s key US non-farm payroll report.
Sterling’s reputation was damaged by this week’s soft set of UK PMI reports and the ‘Greenback’ picked up a little bit of support following remarks suggestive of tighter monetary policy. Federal Reserve policymaker James Bullard said that there was plenty of new data releases to look out for between now and June, but traders are still fairly confident that the US central bank will wait until after the uncertainty of Britain’s EU referendum has passed to raise rates.
This afternoon’s labour data is expected to show that unemployment remained at 5.0% during April and that 200,000 new jobs were added to the economy. If this proves to be the case then the US Dollar could trade with a neutral bias. However, if the figures come in much lower, or much higher, than anticipated then we could witness some volatility in GPB/USD.
Canadian Dollar
The Pound to Canadian Dollar exchange rate slumped half a cent yesterday in reaction to the morning’s downbeat UK service sector report. However, we could see Sterling claw back its losses later today if the latest Canadian unemployment rate rises from 7.1% to 7.2%, as a majority of market players expect it to. The ‘Loonie’ remains susceptible to selling pressure now that Bank of Canada (BOC) rate hike bets have all but evaporated and analysts are now predicting a 16% chance of a 2016 rate cut.
Australian Dollar
Sterling lost out on around -40 pips to the Australian Dollar yesterday, as a series of three-year low private sector PMI reports eroded investor confidence in the Pound. The ‘Aussie’ was relatively unmoved by retail sales data showing that sales volumes grew 0.4% month-on-month in March; 0.5% year-on-year.
New Zealand Dollar
GBP/NZD ticked lower by around a third of a cent yesterday on fears that a slowing economy in the run-up to next month’s EU referendum could prompt further stimulus measures – either in the form of an interest rate cut or additional QE – from the Bank of England.
Data Released
14:30 USD Unemployment Rate (APR) High 5.0%
14:30 USD Change in Non-farm Payrolls (APR) High 200k
14:30 USD Average Hourly Earnings (YoY) (APR) Medium 2.4%
14:30 CAD Net Change in Employment (APR) High 5.0k
14:30 CAD Unemployment Rate (APR) High 7.2%