Sterling
The Pound suffered versus most of the majors yesterday following a softer-than-anticipated UK manufacturing PMI print.
February’s factory output index came in at 54.6, down from 55.7 and lower than forecasts of 55.8. Domestic demand, which has been the primary driver of growth in the sector since the summer, slowed slightly as the Pound’s depreciation drove price pressures higher. However, Sterling’s weakness appeared to have a positive impact on export orders, which the majority of firms surveyed said were expected to continue rising over the next 12 months.
This morning’s construction PMI is predicted to see output slow minimally from 52.2 to 52.0 but the figure accounts for less than 7% of British GDP and is therefore unlikely to have a marked impact on demand for Sterling. Tomorrow’s service sector report should hold more sway, however.
Euro
The Pound to Euro exchange rate tumbled by around -75 pips to hit a fortnightly low yesterday as data on both sides of the channel weighed on GBP/EUR.
While Sterling was impacted by a lower-than-expected manufacturing PMI reading, the single currency benefitted from a four-and-a-half-year high German CPI print. The German inflation index jumped higher-than-anticipated from 1.9% to 2.2% in February as higher food and energy costs drove price pressures up. The result could put pressure on the European Central Bank to start considering a tapering of its expansive quantitative easing scheme, especially if the Eurozone-wide consumer price index prints strongly today. Traders are primed for the currency bloc’s inflation rate to rise from 1.8% to 1.9% – but anything higher than that could easily bolster the appeal of the Euro versus the Pound.
US Dollar
GBP/USD slid to a five-week low yesterday as Sterling depreciated by around a cent against the US Dollar.
Although President Donald Trump’s speech on Wednesday morning did not contain the details of tax reform and infrastructure spending that investors were looking for, the usually combative leader’s conciliatory tone appeared to assuage market concerns.
Demand for the ‘Greenback’ was more influenced by a marked rise in Federal Reserve rate hike expectations. The CME futures tool indicated that a surge in bets drove the probability of a rate hike in March up from just over 30% to almost 70% yesterday. Hawkish comments from policymakers such as William Dudley, Robert Kaplan and Patrick Harker appeared to influence the surge. As did a two-and-a-half-year high US ISM manufacturing print of 57.7, which outpaced forecasts of 56.2.
Canadian Dollar
The Bank of Canada left interest rates on hold at 0.50% yesterday but the accompanying statement struck a notably dovish tone, which allowed GBP/CAD to recover some of its initial losses. The BoC warned that the North American nation faces ‘persistent economic slack’ and spoke of further rate cuts being ‘on the table’ due to ‘significant uncertainties’, such as economic policy south of the border.
Later today annualised Canadian GDP is tipped to rise slightly from 1.6% to 1.7%, which could easily keep the ‘Loonie’ buoyant.
Australian Dollar
The Australian Dollar strengthened by around 150 pips versus the Pound yesterday as demand for the ‘Aussie’ spiked following some robust Australian economic data. Smashing forecasts of 0.8%, Australian GDP printed at 1.1% in the fourth quarter, which helped push GBP/AUD down to a five-week low yesterday.
New Zealand Dollar
Sterling attempted to break through psychological resistance yesterday morning, however, the Pound failed and ceded ground throughout the London session to end the day flat.
Data Released
10:00 EUR Euro-Zone Unemployment Rate (JAN) Medium 9.6%
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (FEB) High 1.9%
13:30 CAD Gross Domestic Product (YoY) (DEC) High 1.7%