Sterling
The Pound only suffered minor losses yesterday, even though the latest UK manufacturing PMI showed that activity within the sector shrank at a faster rate than initially estimated following the ‘Brexit’ vote. Markit Economics reported that, contrary to the flash reading of 49.1, manufacturing output fell from 52.4 to 48.2 in July. The three-year low PMI print was significantly lower than the 50.0 mark that separates growth from contraction and traders were especially concerned by the sub-index for new orders, which registered its sharpest monthly drop for 18 years.
The torrid result suggests that construction and service sector PMIs could also be downgraded and paints a gloomy picture of the UK economic landscape post-‘Brexit’.
Euro
The Pound to Euro exchange rate softened slightly yesterday, touching a 20-day low, in reaction to the downbeat British manufacturing figures.
Data from across the channel showed that factory output decelerated across the currency bloc last month but that most of the biggest economies managed to maintain positive growth. The German PMI hit a two-month low of 53.8, the Italian PMI struck an 18-month low of 51.2, the Spanish PMI slid to a 31-month low of 51.0 and the French PMI came in at a four-month high of 48.6.
Sterling could suffer further losses this morning if UK construction data matches economists’ forecasts of a downgrade from 46.0 to 44.0.
US Dollar
The Pound lost out to the US Dollar yesterday as dreadful UK data bolstered Bank of England stimulus expectations. The UK central bank is due to announce whether or not it is going to cut interest rates to new historic lows on Thursday at midday. Most analysts expect the BoE to slash rates 25 basis points but the potential for more aggressive action means Sterling could find itself depreciating in the build-up to the announcement.
Over in the United States, data showed that manufacturing activity cooled from 53.2 to 52.6 in July. The surprisingly soft print insulated Sterling from any significant losses against the ‘Greenback’. How long the Pound can avoid defeat against the US Dollar remains to be seen.
Canadian Dollar
Crude prices tumbled below US$40 a barrel yesterday for the first time since April. Supply disruptions in Canada and Nigeria helped to boost ‘Black Gold’ up to US$50 per barrel in June but since then lots and lots of oil has hit the market and demand has failed to keep up. The Canadian Dollar is sensitive to oil price fluctuations because oil accounts for around 19% of the nation’s total exports and subsequently Sterling was able to mount a mini rally against the ‘Loonie’ yesterday.
Australian Dollar
Plunging commodity prices and a lower-than-anticipated Chinese manufacturing PMI report helped prop Sterling up against the Australian Dollar yesterday. The risk-sensitive ‘Aussie’ lost ground as Chinese manufacturing fell unexpectedly into contraction in July, with a score of 49.9. The high-beta Antipodean currency was also hurt by expectations that the Reserve Bank of Australia would cut interest rates from 1.75% to 1.50%.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate remained fairly flat yesterday but today’s session could prove more volatile if the latest New Zealand dairy auction sees a strong fluctuation in prices. A rise in dairy prices could easily bolster the appeal of the commodity-correlated ‘Kiwi’, while a decline could tip GBP/NZD higher.
Data Released
09:30 GBP Markit/CIPS UK Construction PMI (JUL) Medium 44
13:00 NZD Dairy Auction Avg. Winning Price MT (AUG 2) High
13:30 USD Personal Spending (JUN) Medium 0.3%
13:30 USD Personal Consumption Expenditure Core (YoY) (JUN) Medium 1.6%