Sterling
The Pound rose against most of the majors yesterday as resilient UK service sector data gave Sterling a leg-up.
To complete a hat-trick of upbeat private sector reports, the April services PMI came in at 55.8, beating estimates of 54.5. The services report represented a four-month high for the sector as business activity rebounded from a slow month in March and firms hired lots of new staff to cope with the rise in demand. The sanguine results bolstered the appeal of the Pound as some investors felt that a solid economic base could persuade the Bank of England to start raising interest rates from the current record low in the foreseeable future.
However, the fact that service sector prices rose at the fastest pace since July 2008 does raise the possibility of slowdowns later down the line because wage growth has been unable to match the rate of inflation.
Euro
Sterling failed to rally against the Euro yesterday and instead tumbled half a cent on hopes that Emmanuel Macron would win the French Presidential election.
Centrist Macron cemented his position as the frontrunner following a terse television debate with far-right Marine Le Pen on Wednesday evening. The pair locked horns on matters ranging from the economy to immigration and the EU. Polls, newspapers and political pundits all declared Macron the winner of the debate, which led to an uptick in demand for the single currency as fears of a French exit receded.
Data in the Eurozone also supported the Euro, with Eurozone retail sales rising from 1.7% to 2.3% and private sector output in the currency bloc striking a six-year high of 56.8.
US Dollar
The Pound to US Dollar exchange rate rallied by around half a cent yesterday as markets responded positively to the surprisingly strong UK service sector PMI. Tertiary output accounts for over 70% of British GDP, which explains why demand for Sterling surged when the reading showed that growth in the sector hit a four-month high last month. Analysts were particularly impressed because markets had been anticipating a slowdown due to inflationary pressures.
The ‘Greenback’ had been trading well prior to the British services print on hopes that the Federal Reserve would raise interest rates again in June. The Fed described the recent cooling in the US economy as ‘transitory’ and markets took this comment as a signal that the US central bank’s hiking cycle would resume shortly. The mildly hawkish message failed to give the US Dollar a lasting lift though, because traders have largely already priced-in the possibility of two more Fed rate hikes in 2017.
Later today US non-farm payroll data is tipped to show that job creation increased from 98,000 to 190,000 in April, however, another sub-100,000 month of job gains could act as a drag on the US Dollar.
Canadian Dollar
Robust domestic data bolstered the appeal of the Pound yesterday, allowing GBP/CAD to appreciate by around a cent. Sterling is currently trading at levels not seen since the Brexit vote in June of last year.
Record high energy shipments helped bring the Canadian trade deficit down from C$1.0 billion to C$0.1 billion in March, it was reported yesterday. However, the encouraging print was not enough to halt the Pound’s stampede and we are unlikely to see a recovery for the ‘Loonie’ this afternoon if Canadian unemployment remains at 6.7% as expected.
Australian Dollar
The Sterling Australian Dollar exchange rate strengthened by around 120 pips yesterday to strike a new multi-month high. Assisted by the sanguine UK service sector report and rising Fed rate hike expectations, the Pound is now trading at its highest levels against the ‘Aussie’ Dollar since September 2016. The commodity-sensitive Antipodean currency was also impacted by a slide in iron ore prices and a report showing the nation’s trade surplus eased from A$3.7 billion to A$3.1 billion in March.
New Zealand Dollar
GBP/NZD drifted higher by around 150 pips yesterday as decent UK domestic data drove demand for the Pound. The New Zealand Dollar drew little support from a report showing that China’s private sector decelerated from 52.1 to 51.2 in April, while US Fed tightening bets also weighed on the risk-correlated ‘Kiwi’.
Data Released
13:30 USD Change in Non-farm Payrolls (APR) High 190k
13:30 USD Unemployment Rate (APR) High 4.6%
13:30 USD Average Hourly Earnings (YoY) (APR) Medium 2.7%
13:30 CAD Unemployment Rate (APR) High 6.7%
13:30 CAD Net Change in Employment (APR) High 10.0k