Sterling
The Pound surged higher across the board yesterday in response to some much-better-than-anticipated UK manufacturing data.
Smashing forecasts of 49.0 the factory output PMI came in at a 10-month high of 53.3 in August. The robust print, which followed a three-year low score of 48.3 in July, marked the joint-largest monthly gain in the index’s near-25-year history.
The news that UK factories bounced back from the ‘Brexit’ shock last month sent investors pouring back into the Pound as Bank of England rate cut bets were trimmed. The BoE has stated that it plans to release further stimulus over the next 12 months if, as it forecasts, economic growth grinds to a halt in the second half of the year. Following July’s dreadful seven-year low composite PMI print it looked as if we were in for a rough ride but yesterday’s sturdy manufacturing figures suggest that the economy may fare better than initially estimated over the next few months.
Euro
The Pound to Euro exchange rate appreciated by around 70 pips yesterday to hit its highest level since the first week of August.
While UK manufacturing printed at a 10-month high, the Eurozone equivalent came in at 51.7. Investors were impressed with the sanguine British factory report, which saw exports benefit from the weaker Pound and domestic orders rebound following a period of post-‘Brexit’ uncertainty in July. However, traders were less pleased with the currency bloc’s PMI score, which included promising data from Germany and Spain but featured contractions in Italy and France.
If the UK service sector PMI, which accounts for over 70% of the British economy, also prints positively next week then we could see Sterling push further ahead versus the single currency.
US Dollar
‘Cable’ leapt higher by over two cents yesterday to strike its highest level since the Bank of England cut interest rates at the beginning of August.
Sterling’s large move higher reflects optimism among currency traders that the UK central bank will not be minded to loosen policy further over the next few months. Indeed, the 10-month high print is a clear sign of hope that the British economy may continue to grow at a steady pace through the second half of the year. However, manufacturing accounts for just over 10% of the UK economy so it is vital that service sector activity also impresses if the Pound is to hold onto its recent gains.
Surprisingly, US manufacturing printed in the red yesterday with the headline ISM index coming in at 49.4, massively undershooting analysts’ forecasts of 52.0. The downbeat figure contributed to GBP/USD’s gains but the ‘Greenback’ could rally back this afternoon if the August non-farm payroll report bolsters Federal Reserve rate hike expectations. Anything above the expected 180,000 figure is liable to benefit the US Dollar.
Canadian Dollar
The Canadian Dollar tumbled by around 150 pips against the Pound yesterday as robust UK manufacturing data bolstered the appeal of the UK currency and reduced the probability of near-term stimulus from the Bank of England. The ‘Loonie’ also suffered from another steep drop in the value of oil. Crude dipped around -3% as oversupply issues coupled with skepticism surrounding a potential OPEC deal to curb production continued to drag the commodity lower.
Australian Dollar
The Pound to Australian Dollar exchange rate surged to a monthly high yesterday, helped by the impressive August UK manufacturing report and bets of tighter policy from the Federal Reserve. Risk-correlated currencies such as the ‘Aussie’ have been in retreat since Fed President Janet Yellen piqued traders’ attention with talk of further rate hikes.
This afternoon could see GBP/AUD rally again if the US NFP report prints positively. Conversely, a lowly NFP figure could give the ‘Aussie’ impetus to recover.
New Zealand Dollar
GBP/NZD struck a three-week high yesterday, strengthening by over a cent, as BoE stimulus bets deteriorated in response to the
Data Released
09:30 GBP Markit/CIPS UK Construction PMI (AUG) Medium 46.5
13:30 USD Change in Non-farm Payrolls (AUG) High 180k
13:30 USD Unemployment Rate (AUG) High 4.8%
18:00 USD Fed’s Lacker Speaks on Interest Rate Benchmarks in Richmond Medium