Sterling
The Pound picked up the pace a little bit versus some of the majors yesterday following a dud couple of days of declines.
UK construction data printed weaker-than-expected at 51.2, compared to forecasts of 52.0, but the result had little impact on Sterling. This morning’s service sector PMI report could prove more interesting as Britain’s tertiary industries account for over 70% of the UK’s economic output. The private sector print is predicted to show that service sector activity accelerated from 52.3 to 52.5 in May. Anything lower could hurt the Pound, while anything higher could bolster demand.
Euro
Little was expected from yesterday’s European Central Bank policy announcement and little came from it.
The ECB left its benchmark interest rate on hold at 0.00% and refrained from modifying its -0.40% deposit rate. The €80 billion per month asset purchasing scheme was also left unchanged.
In what was one of President Mario Draghi’s least memorable speeches, the ECB Chief raised the bank’s 2016 Eurozone growth outlook from 1.4% to 1.6% and upgraded 2016 inflation expectations from 0.1% to 0.2%.
However, the Euro did not respond well to the statement because Draghi noted that inflation was still likely to be below the 2.0% target in 2018 and hinted that the bank’s QE scheme could be extended past the current expiration date of March 2017.
US Dollar
Sterling ticked minimally higher versus the US Dollar yesterday, as markets adjusted following a few days of ‘Brexit’-related losses.
The only US data of note showed that ADP’s employment gauge rose from 156,000 to 173,000, pretty much inline with market expectations. Although the ADP report does not always share a strong correlation with the more widely followed non-farm payroll survey, the consensus number suggests that this afternoon’s NFP print will not deviate significantly from analysts’ predictions of 160,000.
However, it’s the average hourly earnings section of the report that will most interest investors, as this has more chance of persuading Federal Reserve policymakers to either stick or twist. A strong pick-up in wage growth could drive the ‘Greenback’ higher, but the potential for a June hike will shrink if wages do not impress.
Canadian Dollar
The Pound to Canadian Dollar exchange rate strengthened by around half a cent yesterday as farfetched hopes of an OPEC production cut deal were dashed.
Crude oil dropped -1% following the announcement that OPEC’s meeting in Vienna had failed to bring about an agreement. The market reaction was less marked than it could have been because Iran had publicly stated prior to the meeting that it plans to ramp up production in 2016 now that Western sanctions have been lifted.
Australian Dollar
After racking up three cents worth of gains against Sterling on Tuesday, the Australian Dollar appreciated by a further 150 pips yesterday thanks to some better-than-anticipated data prints in the Asia-Pacific region.
The Pound rallied by over a cent against the Australian Dollar yesterday following some below consensus Australian retail data. GBP/AUD began rising when Australian retail sales printed at below expectations of 0.3%, and the ‘Aussie’ continued to slide through the day. Risk appetite was eroded by the no-go OPEC oil deal.
New Zealand Dollar
Sterling managed to eke out gains of just under a cent against the New Zealand Dollar yesterday, following a torrid start to the week for GBP/NZD. It seems like a mixture of profit taking and risk aversion trends were behind the Pound’s mild appreciation against the ‘Kiwi’.
Data Released
09:30 GBP Markit/CIPS UK Services PMI (MAY) Medium 52.5
10:00 EUR Euro-Zone Retail Sales (YoY) (APR) Medium 2.1%
13:30 USD Unemployment Rate (MAY) High 4.9%
13:30 USD Change in Non-farm Payrolls (MAY) High 160k
13:30 USD Average Hourly Earnings (YoY) (MAY) Medium 2.5%