Surprise UK Construction Contraction Sends Sterling Reeling
A surprise contraction in September’s construction activity sent the Pound reeling yesterday.
Markit Economics reported that UK construction output slowed from 51.1 to 48.1 last month, taking the PMI down below the 50.0 mark that separates growth from contraction.
Markets were wrong-footed by the result, as they had anticipated output to remain close to August’s 51.1, and were subsequently moved to sell the Pound versus the majors.
The 14-month low report featured sharp dips in new orders and civil engineering work, with respondents citing political and economic uncertainty as reasons for the drop-off in activity.
Pound to Euro Exchange Rate Hits 10-Day Low Ahead of UK Service Sector PMI
The Pound to Euro exchange rate fell by around half a cent yesterday to strike a 10-day low as the softening UK economic outlook continued to weigh on GBP/EUR.
Today sees the highly influential British service sector PMI, which accounts for over 70% of total economic output. If the services print also dips below 50.0 then there could be serious repercussions for the Pound as traders readjust their projections.
The tertiary output report is forecast to come in at 53.2, however, both the manufacturing and the construction surveys for September printed significantly lower than analysts had anticipated, so another soft print cannot be discounted.
Also on the agenda is the Eurozone retail sales report for August, which is tipped to show sturdy growth of 2.6%, on par with July’s print.
Pound to US Dollar Exchange Rate Slides -30 Pips to 3-Week Low
Sterling slid by around a third of a cent yesterday, striking a new three-week low versus the US Dollar as a downbeat domestic stream weighed on demand for the Pound.
However, the Bank of England’s desire to start raising rates, albeit gradually, in the foreseeable future could provide Sterling with support in the coming days and weeks.
Having said that, a shock drop in UK services output could derail the BoE’s policy plans and would likely lead to steep losses in GBP/USD. We could also see ‘Cable’ suffer if Federal Reserve Chairwoman Janet Yellen employs hawkish rhetoric in a speech to the banking community later this evening.
Pound to Canadian Dollar Exchange Rate Depreciates Half a Cent
The Pound to Canadian Dollar exchange rate tumbled by around half a cent yesterday. The move mostly reflected investors’ reaction to the morning’s shock slide in UK construction output, with little news related to the Canadian economy or the crude oil market.
US inventory data could impact GBP/CAD trading this afternoon: a rise in crude supply could soften the appeal of the commodity-correlated ‘Loonie’, while a dip could give the Canadian Dollar a boost.
Pound to Australian Dollar Exchange Rate Flat as RBA Leaves Interest Rates on Hold
Sterling rallied by around 70 pips versus the Australian Dollar initially yesterday but GBP/AUD gave up most of its gains later in the day.
The ‘Aussie’ slumped across the board early in the morning following the Reserve Bank of Australia’s decision to leave interest rates on hold at 1.50%.
The decision was largely expected beforehand, but still gave speculative investors an opportunity to sell the high-beta ‘Aussie’.
The Pound, betrayed by poor UK construction numbers, struggled to hold onto its early morning gains and the pair closed for the day close to where it began.
Pound to New Zealand Dollar Exchange Rate Rises as Dairy Prices Fall at Auction
A slide in dairy prices at the latest auction allowed the Pound to register rare gains versus the New Zealand Dollar yesterday.
GBP/NZD inched higher by around 60 pips on a day when Sterling suffered losses against most of the majors.
The latest Global Dairy Trade auction saw the value of the Antipodean nation’s most-lucrative export dip -2.4%, prompting a selloff in the ‘Kiwi’ Dollar.
Data Released Today
09:30 GBP Markit/CIPS UK Services PMI (SEP)
10:00 EUR Euro-Zone Retail Sales (YoY) (AUG)
15:00 USD ISM Services/Non-Manufacturing Composite (SEP)
20:15 USD Yellen Gives Welcoming Remarks at Community Banking Event