Sterling
The Pound struggled again yesterday against some of the majors as UK construction data disappointed and Brexit anxieties returned to the fore.
Following on from the softer-than-anticipated manufacturing score, the construction PMI came in at 52.2, slightly less than forecasts of 52.5. Markit Economics, who compiled the report, noted that business activity and housing construction projects cooled in March, while civil engineering and commercial work flourished.
Sterling didn’t actually suffer any great losses following the construction report, but if this morning’s more influential service sector PMI were to signify a hat trick of underwhelming private sector prints then the Pound could come under additional pressure. It seems that a rise in global risk aversion was the main driving force behind Sterling’s losses, with traders focussing on the uncertainty surrounding the upcoming Brexit negotiations.
Euro
The Pound to Euro exchange rate tumbled by around a third of a cent yesterday as deteriorating risk sentiment prompted traders to bet that the Bank of England wouldn’t raise interest rates during the two-year EU divorce process.
Data out of the Eurozone came in positively, with the currency bloc’s retail sales index jumping from 1.5% to 1.8%, beating estimates of 1.0%. This built on sturdy labour market and factory output figures earlier in the week to bolster the appeal of the single currency.
US Dollar
‘Cable’ depreciated by around half a cent yesterday as traders flocked to safe haven assets such as the US Dollar. A combination of fears relating to US President Donald Trump’s meeting with Chinese President Xi Jinping, the suspected suicide bombing in St. Petersburg and the upcoming French elections contributed to the rise in risk aversion.
Regarding the Trump/Jinping summit in Florida at the end of the week, traders are concerned that the US President’s outspoken views on China (he’s previously labelled the Chinese government a currency manipulator and advised US firms to stop investing in the country) could lead to flare-ups with wide-reaching consequences for global trade. If the pair manage to strike a cordial tone then we could see investors race back into perceived riskier assets as global growth anxieties soften.
The Federal Reserve’s minutes report, due this evening, could also sway currency markets if it gives any further indication of the US central bank’s policy plans for 2017. At present, a further two rate hikes are projected this year.
Canadian Dollar
While flights to safety hurt the Pound against the US Dollar, the shift in global outlook benefitted Sterling versus the Canadian Dollar.
The risk-sensitive ‘Loonie’ was also impacted by a surprise budget deficit of -C$972 million, which disappointed expectations of a C$500 million surplus. The negative result was driven by one of the worst months for export orders in almost a year, and marked the first month of deficit in over a quarter.
Australian Dollar
Sterling ticked a little higher versus the Australian Dollar yesterday as global risk aversion trends favoured the Pound over the risk-sensitive ‘Aussie’.
The ‘Aussie’ was also mildly impacted by the Reserve Bank of Australia’s decision to leave rates on hold at 1.50%. RBA Governor Philip Lowe noted that sending the interest rate up from its current all-time low could threaten economic growth by hampering household spending. This was seen to pre-empt a period of static rates, which weighed on the Antipodean currency.
New Zealand Dollar
Although dairy – New Zealand’s most lucrative export – prices rose 1.6% at auction, the Pound to New Zealand Dollar exchange rate rallied by around a third of a cent yesterday. The Pound’s mild gains reflected a drop-off in demand for the commodity-correlated ‘Kiwi’ due to a market-wide climate of risk-off trading.
Data Released
09:30 GBP Markit/CIPS UK Services PMI (MAR) Medium 53.5
15:00 USD ISM Services/Non-Manufacturing Composite (MAR) High 57
19:00 USD FOMC Meeting Minutes (MAR 15) High