Sterling
The Pound registered gains versus most of the majors yesterday thanks to a three-year high UK manufacturing PMI print.
Smashing expectations of 54.0, the factory output index came in at 57.3 thanks to a surge in new orders. It seems that the Pound’s depreciation in the second half of 2016 is having a positive impact on factory orders by making British exports more competitive. However, the dominant services industry, which accounts for over 70% of UK economic output, appears to be suffering from the effects of a weaker domestic currency and higher consumer prices. This means that despite the upbeat manufacturing report, we could see the Pound slip back if Thursday’s service sector PMI fails to impress.
Euro
Sterling rallied by around a quarter of a cent against the Euro yesterday on news of the sanguine UK manufacturing PMI.
Data on the continent showed that unemployment remained at an eight-year low of 9.5% in March. But the single currency was not boosted by the figure because analysts had been primed for a downtick to 9.4%. Working in the Euro’s favour, however, was news that Greece had agreed a new bailout deal with the European Commission. Although negotiations have not taken up much of the limelight this time around, crisis talks have been simmering away in the background for a while. The latest agreement, which will see additional Greek cuts, may not be welcomed by all but it should help to prevent Greece leaving the Euro.
US Dollar
Stoked by the robust UK manufacturing PMI, the Pound ticked higher by around 20 pips versus the US Dollar yesterday.
Having broken through a number of significant resistance levels over the last few weeks, analysts are turning increasingly bullish on GBP/USD. Later this evening the Federal Reserve is due to announce its latest plans for monetary policy. The majority of market players are betting that the US central bank will leave rates on hold and there is speculation suggesting that policymakers could even scale back on plans to hike rates a further two times in 2017. With US President Donald Trump’s reflationary policy plans in doubt, the ‘Greenback’ could suffer additional losses against the Pound if this evening’s Fed statement features any dovish rhetoric.
Canadian Dollar
The Pound to Canadian Dollar exchange rate appreciated by over a cent yesterday to strike a new 10-month high as GBP/CAD advanced for the 12th time in the last 14 sessions. Sterling has strengthened by around 12 cents in that time. There didn’t appear to be any fresh downward pressure on the ‘Loonie’ so yesterday’s GBP/CAD gains were likely a result of the upbeat UK manufacturing report.
Australian Dollar
The Reserve Bank of Australia left interest rates unchanged at 1.50% on Tuesday. The RBA mentioned that ‘a gradual further increase in underlying inflation is expected as the economy strengthens’ and markets are now a little more upbeat regarding the prospects of an eventual rise in Australian interest rates. Despite the positive central bank commentary, the ‘Aussie’ Dollar tumbled by around 60 pips against the Pound yesterday.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate benefitted from the three-year high UK manufacturing PMI yesterday to rise by around 25 pips. Demand for the ‘Kiwi’ was supported by a 3.6% rise in dairy prices, New Zealand’s largest export, but the energised Sterling still came out on top.
Data Released
08:30 GBP Markit/CIPS UK Construction PMI (APR) Medium 52
09:00 EUR Eurozone Gross Domestic Product s.a. (QoQ) (1Q A) Medium 0.5%
09:00 EUR Eurozone Gross Domestic Product s.a. (YoY) (1Q A) High 1.7%
14:00 USD ISM Non-Manufacturing Composite Index High 55.8
18:00 USD FOMC Rate Decision (Lower Bound) (MAY 03) High 0.75%