Sterling
The Pound performed well yesterday as markets responded positively to better-than-anticipated UK manufacturing activity.
The factory output PMI for May printed at 56.7, up on expectations of 56.5 and only slightly lower than April’s three-year high score of 57.4. Encouragingly new order growth remained solid, both at home and abroad, business outlook rose to a 20-month high and job creation surged to a 35-month high.
Although the manufacturing report pointed to sustained sturdy growth in the sector it was a little surprising to see Sterling rally so strongly considering that opinion polls have dominated trading patterns over the last week.
YouGov’s latest poll put the Conservative’s lead over Labour at a record low 3-points, while a Panelbase poll showed Theresa May’s lead over Jeremy Corbyn narrowing from 15-points to 8-points. The tight poll results suggest Prime Minister Theresa May will not get the landslide victory she hoped for (and that investors believed would strengthen her hand in the upcoming Brexit negotiations) when she called for snap elections back in April.
Euro
The Pound to Euro exchange rate slumped to a two-and-a-half-month low yesterday before rising by around 70 pips to mark an overall daily gain of around half a cent.
While UK manufacturing output came in higher than most economists had expected, it was the Eurozone factory sector PMI that really got traders talking. The currency bloc witnessed its best month of factory output for over six years in May, helped by a 73-month high German reading and a record high surge in job creation. The PMI detailed that more jobs were created in the factory sector last month than during any other month in the survey’s 20-year history.
The upbeat Eurozone private sector report helped drive GBP/EUR lower initially, however, Sterling caught a bid as technical support levels came into play.
US Dollar
Sterling ran into resistance against the US Dollar at a psychological barrier yesterday and subsequently ended flat on the day.
Demand for the Pound was subtly bolstered by the morning’s sturdy UK manufacturing PMI report, however, an above-target US ISM manufacturing score effectively nullified the impact of the British print. Another US report, showing that ADP’s employment change index increased by 253,000 last month, boded well for this afternoon’s crucial non-farm payroll report and the ‘Greenback’.
Provided the NFP doesn’t print below 100,000, the Federal Reserve is highly likely to hike interest rates this month. If the jobs report was to come in above expectations then it could boost the US Dollar by persuading markets to increase their projections for a September hike from the US central bank.
Canadian Dollar
The morning’s optimistic UK manufacturing print allowed the Pound to rally by around 40 pips versus the Canadian Dollar yesterday. The ‘Loonie’ gained a little bit of momentum when US crude inventories fell by 6.4 million barrels, which was the sharpest drawdown of the year and substantially larger than market expectations of 2.5 million. However, commodity traders concluded that the market was unlikely to improve because US shale producers would likely step in to fill the gap left by the recent OPEC production cut extension.
Australian Dollar
Bolstered by sanguine domestic manufacturing data, Sterling appreciated by around a cent versus the Australian Dollar yesterday. The ‘Aussie’ suffered as private capital expenditure printed softly at 0.3% for the first quarter, down on forecasts of 0.5%, and Chinese manufacturing output entered contractionary territory at 49.6, compared to calls for 50.1. A 2% dip in the value of iron ore, Australia’s most-lucrative export, also weighed on demand for the ‘Aussie’.
New Zealand Dollar
GBP/NZD ticked higher by around half a cent yesterday as reassuring domestic data drove Sterling higher despite more signs of political uncertainty ahead of next week’s general election.
Data Released
09:30 GBP Markit/CIPS UK Construction PMI (MAY) Medium 52.6
13:30 USD Change in Non-farm Payrolls (MAY) High 180k
13:30 USD Average Hourly Earnings (YoY) (MAY) Medium 2.6%