Pound Struggles to Hold onto Exchange Rate Gains after Worse-than-expected Manufacturing PMI

GBP on Soft Form after Manufacturing PMI Slowdown Weakens Sterling Gains

Pound Sterling exchange rates largely started the day on strong form yesterday, thanks to a cocktail of positive factors boosting appetite the GBP while sapping demand for its major peers.

However, Sterling’s buoyancy was curtailed later in the day after the morning’s Markit UK manufacturing PMI for January showed an unexpected decline, dropping from a downwardly revised 56.2 to 55.3. While this remained above the long-term average, it wasn’t the start to the New Year that markets had been hoping for.

The Markit UK construction PMI for January is set for release today; construction provides only a small portion of the UK’s annual income, but if it also weakens this could push the Pound lower on market fears that next week’s vital services index will put on a poor showing as well.

GBP/EUR Exchange Rate Slipped Lower as Markets Welcomed Strong Eurozone Manufacturing Data

Strong Eurozone Markit manufacturing PMIs, coupled with weak demand for the US Dollar, allowed the Euro to make strong gains yesterday.

The Italian manufacturing index and finalised French manufacturing index for January both beat forecasts, but the Eurozone index remained unchanged on preliminary estimates and the German index was cut by just -0.1 points to the still impressive score of 61.1. Confidence continues to build over the Eurozone economic recovery, which kept EUR demand strong yesterday.

Eurozone producer price index data today is forecast to show a slowdown in input costs; this could weigh on the Euro as it suggests inflationary pressures and the Eurozone are set to remain soft, if not weaken.

Surprise US Productivity Decline Allows GBP/USD to Hold Opening Levels

The GBP/USD exchange rate was able to hold onto opening levels yesterday, after the latest labour market data from the US showed that productivity unexpectedly fell for the first time since the beginning of 2016.

This does not bode well for President Donald Trump’s hopes of boosting economic growth above 3% as promised, which could take the shine off his recent tax reforms. Productivity declined by -0.1% in the fourth quarter, compared to forecasts of a slowdown from 2.7% to 0.7%.

An above forecast reading from the ISM manufacturing PMI left the index well above its long-term average, but failed to do much to lift support for USD.

The hugely influential US non-farm payrolls report for January is set for release today. This is perhaps the most influential release on the data calendar in terms of what the Federal Reserve decides to do with regards to monetary policy, so a strong figure here would help further raise hopes that there will be four interest rate hikes this year.

Minor Gains for GBP/CAD despite Forecast-beating Canadian Manufacturing Data and Strong Crude Oil Price Rise

The Canadian Dollar was largely on poor form yesterday, despite a better-than-expected performance from the RBC manufacturing PMI for January.

The index was expected to rise from 54.7 to 54.8, but instead leapt to 55.9.

Even a 1% rise for the WTI and Brent crude oil benchmarks couldn’t push the Canadian Dollar higher, with markets growing wary ahead of today’s vital US labour market report.

GBP/AUD Exchange Rate Surges; December Building Approvals Decline Weighs on Australian Dollar

The Australian Dollar slumped yesterday, allowing the GBP/AUD exchange rate to record strong gains.

The recent poor inflation data was still weighing on the ‘Aussie’, as well as yesterday morning’s early building approvals data for December, which showed a -20% drop in month-on-month approvals against forecasts for -7.6%.

Approaching US Ecostats Weaken New Zealand Dollar; GBP/NZD Inches Higher

The Pound was only able to make minor gains versus the New Zealand Dollar yesterday, as the ‘Kiwi’s only downside risks were the approaching US economic data.

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron