Sterling
Sterling fared well on Friday morning, rising versus most of the majors as British construction data came in better-than-anticipated.
Following Thursday’s robust manufacturing report, the construction PMI for August showed signs that the UK economy is recovering from the initial post-‘Brexit’ shock. After sliding to a seven-year low of 45.9 in July, the sector jumped to 49.2 last month thanks to a rebound in civil engineering and an uptick in hiring. However, the score was lower than the 50.0 mark that separates growth from contraction and many firms cited still cited the referendum fallout as a key concern.
If the Pound is to maintain its recent bullish run we will need to see a sturdy service sector print this morning. Britain’s dominant services industry accounts for over 70% of total economic growth and, as such, has a bigger impact on Sterling than the construction and manufacturing PMIs. Analysts are primed for a score of 50.0 and anything higher could stoke demand for the UK currency.
Euro
The Pound to Euro exchange rate surged 70 pips to strike a fresh monthly high on Friday as forecast beating UK PMI data assuaged fears that Britain could be spiralling into recession in the aftermath of the historic EU referendum.
In addition to the UK construction PMI result, GBP/EUR was boosted by speculation that the European Central Bank may consider loosening monetary policy further at this week’s meeting. Recent data has shown that, despite the ECB’s monthly €80 billion bond purchases, unemployment remains worryingly high and inflation stubbornly low in the currency bloc.
The market consensus is that President Mario Draghi and his Governing Council will remain in wait-and-see mode during September. But dark mutterings of further stimulus suggest the single currency may struggle to catch a bid in the run-up to the ECB press conference.
US Dollar
The US Dollar slumped to a fresh monthly low against the Pound on Friday afternoon in the minutes immediately proceeding August’s non-farm payroll report.
Federal Reserve rate hike bets receded in reaction to the NFP data, which showed that job creation decelerated from 275,000 to 151,000 last month. The slowdown was seen to reduce the probability of a September rate hike but most analysts concluded that the numbers were not soft enough to alter the outlook for December, considering that a raft of Fed policymakers have recently came out and made the case for higher rates.
GBP/USD jumped higher by 90 pips in a knee-jerk reaction to the result but Sterling’s gains were trimmed to around 30 pips by the end of the day.
Canadian Dollar
Sterling tumbled by around -120 pips versus the Canadian Dollar on Friday as risk sentiment improved in reaction to the underwhelming US NFP report. Traders had fretted over the possibility of a Fed rate hike in September but the below-forecast US labour report suggests that markets will probably benefit from ultra-low interest rates for at least another few months and this bolstered the appeal of the commodity-sensitive Canadian Dollar.
The ‘Loonie’ also benefitted from a domestic trade report showing an unexpected narrowing of the deficit to C$2.5 billion, which beat estimates of C$1.9 billion.
Australian Dollar
The Pound to Australian Dollar exchange rate remained just below a monthly high during Friday’s session. GBP/AUD fluctuated in a 150-pip range following the US NFP report, as analysts tried to make sense of the numbers, but ultimately the pair closed for the day at the same level that it began.
New Zealand Dollar
Sterling strengthened by around a third of a cent against the New Zealand Dollar on Friday as better-than-anticipated UK construction data was seen to reduce the prospect of further easing from the Bank of England over the next few months. GBP/NZD could rally further today if this morning’s UK service sector report prints positively.
Data Released
09:30 GBP Markit/CIPS UK Services PMI (AUG) 50.0 50
10:00 EUR Euro-Zone Retail Sales (YoY) (JUL) Medium 1.6%