Service PMI Slump Compounds Pound Sterling Woes as Official Signals Exit from EU Customs Union
Brexit fears and poor UK economic data dragged the Pound significantly lower yesterday. Markets were rattled by comments over the weekend from a Downing Street official that the UK would be leaving the customs union after Brexit; an issue that it until now had been shrouded in uncertainty.
Additionally the UK’s services PMI for January fell much further than expected, dropping from 54.2 to a 16-month low of 53. This, combined with last week’s poor manufacturing and construction indices, suggests that the UK economy slowed at the beginning of 2018.
Best Eurozone Private Sector Performance in Over a Decade Undermines GBP/EUR Exchange Rate
It was a game of two halves for the Euro yesterday, but Pound Sterling was one of the major currencies that the Euro was recording strong gains against. The latest Eurozone PMIs revealed that the currency bloc’s private sector was performing at its best level in 11 years, although the latest Sentix investor confidence index unexpectedly fell and Eurozone retail sales figures for December showed the expected -1% decline month-on-month.
Eurozone retail PMIs could further illustrate the strength of the currency bloc economy, making it hard for GBP to recover yesterday’s losses.
Best US Non-manufacturing Index Since 2005 Sees GBP/USD Slump
A healthy uptick in the US ISM non-manufacturing composite index for January pushed the Pound Sterling to US Dollar exchange rate significantly lower. The index was expected to rise from 56 to 56.7, but instead rose to 59.9; its highest in over 12 years. This significantly boosted the odds that the Federal Reserve will hike interest rates multiple times over the coming year, which lit a fire under the US Dollar in the afternoon.
Federal Reserve official James Bullard is set to speak on the topic of the US economy and monetary policy today, so odds of an interest rate hike in March could shift this afternoon.
USD Strength Weighs on CAD, yet GBP/CAD Weakens on Gloomy UK Outlook
While the Canadian Dollar was being pushed down against its other major peers in the face of an advancing US Dollar, Pound Sterling was unable to make gains versus the ‘Loonie’ and the GBP/CAD exchange rate slumped. This was despite drops of over -1.1% for both WTI and Brent crude oil.
Canadian trade data is set for release later and could support the Canadian Dollar against the Pound if forecasts of a shrinking deficit are met.
Strong Australian Jobs Data Boosts RBA Rate Hike Odds and Pushes GBP/AUD Lower
Despite the strengthening US Dollar cooling market appetite for risk, the Pound Sterling to Australian Dollar exchange rate fell yesterday thanks to a notably high number of jobs advertised in Australia during January. According to ANZ, job advertisements climbed 6.2% on the month, representing the largest increase on the month since February 2010.
This is encouraging news that suggests the Australian labour market continues to strengthen, which could help convince the Reserve Bank of Australia (RBA) to tighten monetary policy later in the year. The RBA has just announced its latest monetary policy decisions, so AUD could spend today on volatile form as markets react to the latest updates.
Chinese PMI Strength Supports New Zealand Dollar; GBP/NZD Exchange Rates Slide
The Pound Sterling to New Zealand Dollar exchange rate also weakened, with NZD able to largely escaped the downwards pressure placed upon high yield assets from the strengthening odds of a US interest rate hike in the near-term. Strong figures from the latest Chinese PMIs improved the outlook for New Zealand trade.
The latest Global Dairy Trade auction takes place today; a rise in the price of milk would boost the New Zealand Dollar, while a slump could favour the Pound. This evening also sees the release of fourth-quarter unemployment and earnings data.