Sterling
The Pound weakened again yesterday following a poor end to last week’s session. Sterling was hit by a hat trick of negative PMI reports on Friday showing that the three largest sectors of the UK economy entered contraction in July. Fallout from the ‘Brexit’ vote dragged manufacturing output down from 52.1 to 49.1 and pulled the dominant service sector down from an index of 52.3 to an 88-month low of 47.4. The composite PMI, which measures output across the sectors came in at a multi-year low of 47.7 – significantly lower than the 50.0 mark that separates growth from contraction. The marked shift in private sector activity post-’Brexit’ represented the worst monthly score since the dark days of the financial crisis in 2009.
Sterling weakened across the board in response to the figures last week and sentiment towards the UK currency was harmed yesterday evening by reports that Bank of England policymaker Martin Weale had changed his mind and now favours immediate stimulus to boost the domestic economy. Weale cited the weak PMI numbers as reason to act decisively.
Euro
The Pound to Euro exchange rate tumbled 50 pips yesterday as data showed that UK manufacturing firms were feeling gloomier about business prospects now than at any time since the nadir of the financial crisis in 2009. The Confederation of British Industry reported that business optimism plummeted from a score of -5 to a seven-year low of -47 in the aftermath of the historic EU referendum.
The only data released in the Eurozone yesterday showed that German analysts remained surprisingly upbeat in comparison to their UK peers. The headline IFO business climate index dipped minimally from 108.7 to 108.3, beating forecasts of 107.5, while the forward looking expectations index came in at 102.2, outpacing estimates of 101.6. German firms noted that Britain’s eventual exit from the Eurozone would remain a key risk but some agreed with European Central Bank President Mario Draghi’s comments last week suggesting that the negative impact of the decision could have been overblown in the media.
US Dollar
After suffering losses of around 150 pips on Friday the Pound to US Dollar exchange rate managed to hold its ground yesterday. ‘Cable’ rallied by around a quarter of a cent in the morning before sliding back during the evening. The pair could struggle to post any lasting gains over the next few weeks because the Bank of England is due to meet and most likely loosen monetary policy on August 4.
This afternoon sees the release of the latest US service sector and consumer confidence figures. While service sector output is predicted to have accelerated from 51.4 to 52.0 in July, analysts reckon consumer confidence could have cooled from 98.0 to 95.5. If the data prints inline with expectations then markets are unlikely to respond to the data with any substantial shifts in trading patterns.
Canadian Dollar
A significant pullback in crude oil prices weighed on the commodity-sensitive Canadian Dollar yesterday, helping Sterling rack up a daily gain of around 100 pips.
Oil prices slumped over 2% yesterday to strike a new three-month low as fears of a supply glut worsened due to tepid global demand and the resumption of oil production in the Canadian province of Alberta, where wildfire had disrupted operations.
Australian Dollar
Sterling slid by over a half a cent against the Australian Dollar last night as newswires reported that BoE policymaker Martin Weale was now gunning for immediate policy action, having previously indicated that more solid data was needed to prompt a move from the central bank.
The high-beta ‘Aussie’ could have posted larger gains if it were not for the drop in global commodity prices and fears that this week’s domestic CPI figures could persuade the Reserve Bank of Australia to announce a rate cut of its own. Analysts are primed for a deceleration in Australian inflation from 1.3% to 1.1%, which could be enough to force the RBA’s hand.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate tumbled by around half a cent yesterday in response to the dovish rhetoric from the BoE’s Martin Weale. New Zealand data showed that the nation’s trade surplus shrank from NZ$354 million to NZ$127 million in June as both import and export values declined.
Data Released
14:45 USD Markit US Services PMI (JUL P) Medium 52
15:00 USD Consumer Confidence (JUL) High 95.5