Raphael Sonabend, FX Analyst
A strong gain in UK construction PMI failed to support Sterling gains as the dollar continued to strengthen against counterparts and traders invested in this safe haven currency. The rise in construction was the sharpest in four months and analysts said the result was in line with recent positive sentiment however risks lie ahead as orders could subdue on the back of uncertainty prior to the general election. Data around the world was similarly strong as Canadian GDP rose by 0.3% compared to the month before and the NZ GDT price index saw the sixth consecutive rise. The final of the three UK sectors will release their PMI data today and services is often considered to be the most significant. A forecast rise from 57.2 to 57.6 is likely to lend a hand to Sterling gains. The US ADP employment figures at 13:15 should be taken with a pinch of salt as they often miss predictions, following this the US non-manufacturing PMI figures and Canadian rate statement will be released at 15:00. Whilst analysts are generally in agreement that the Bank of Canada will hold rates at 0.75%, more dovish traders see a cut as a real possibility and we therefore anticipate Loonie volatility before this release.
GBP/EUR: Currently trading at 1.3795
- Another solid result from UK data saw construction PMI rise to 60.1 from 59.1 and this rate climbed half a cent. The euro quickly recovered lost ground but a Sterling bounce saw another push towards 1.376. Construction activity saw the sharpest climb in four months and was led by the fastest increase in new orders since October 2014.
- Services PMI is often seen as the most important of the three PMI releases and with an improvement forecast, the pound could continue to gain on the euro. Eurozone retail sales, which will be released soon after the PMI data, is likely to be overshadowed but if a loss is registered as predicted, could lend a hand to Sterling gains.
GBP/USD: Currently trading at 1.5355
- Slight volatility was detected in this pair yesterday as positive UK data battled with a naturally strengthening dollar. As UK construction saw a solid 1.0 rise and fears subdued over the negative effects of low oil prices, the Sterling failed to post and hold gains against the greenback.
- The pound has been strengthening in this morning’s session, possibly in anticipation of services PMI later this morning. This afternoon’s US ADP non-farm employment change figures are forecast to rise from 213K to 219K however this often falls far from predictions and volatility is likely to be seen following this release. Our focus for the afternoon will be on the US ISM non-manufacturing PMI figures, with a fall predicted from 56.7 to 56.5, this could pave the way for Sterling gains, especially if services come out strong.
EUR/USD: Currently trading at 1.1130
- This pair traded between a one cent range yesterday as the euro and dollar fought for the upper hand. Strong Spanish unemployment change figures yesterday morning failed to support euro gains but at midday a natural correction saw a reversal of euro losses. Later in the afternoon the greenback once again had the upper hand and has since been gaining on the euro.
- This morning has seen the euro lose ground, possibly on the back of Spanish services PMI falling to 56.2, despite a rise to 56.9 predicted. Focus for today will be on the ADP non-farm employment change data out of the US this afternoon. Uncertainty surrounds this release as it frequently misses the mark and volatility could be seen.
GBP/AUD: Currently trading at 1.9626
- Following the significant rate drop early yesterday morning, the pairing remained fairly stable, trading between 1.96 and 1.97 throughout the course of the day. Other than the brief price action this morning caused by the announcement of Aussie GDP figures, the lack of volatility has continued.
- Today could provide an opportunity for the pound to recover some of the recent losses with the release of UK PMI services data later this morning, forecast to improve on last month’s reading. Early tomorrow morning Aussie retail sales and trade balance data will be released. Volatility could be seen following these releases as retail sales is expected to climb 0.4% and the deficit is forecast to widen.
GBP/NZD: Currently trading at 2.0312
- The Kiwi posted gains of over a cent and a half yesterday as the Global Dairy trade auction rose for the sixth consecutive time, this month with a 1.1% climb. Another strong climb in cheddar saw a 10.8% increase whilst whole milk powder fell by 1.0%.
- The pound has started to resist gains this morning in anticipation of a strong figure from services PMI later this morning. With a solid rise predicted, Sterling could continue to recover lost ground throughout today’s session.
GBP/CAD: Currently trading at 1.9217
- The Loonie managed to gain over a cent and a half yesterday as Canadian GDP registered a monthly rise of 0.3%, above the 0.2% forecast and well above the previous -0.2%. This strong result was driven by the oil and gas extraction and the finance and insurance sectors. This release should reassure more dovish traders that the Bank of Canada will hold the overnight rate later today.
- The pound has been steadily recovering ground in today’s session and with services PMI forecast to be strong, this recovery could be accelerated later this morning. The Bank of Canada’s rate statement and overnight rate later today will hold our attention for this afternoon, forecast to remain at 0.75%, this may help the Loonie limit Sterling gains.
Subscribe to our morning, weekly or monthly reports here and make sure you never miss an update: https://www.caxtonfx.com/currency-banking/the-caxton-account#Free-currency-reports
This blog is prepared by Caxton FX Ltd for information purposes only and may contain personal views that are not the opinion of the company. This is not an offer to purchase or sell any security or an investment advertisement. Caxton FX Ltd is authorised and regulated by the Financial Conduct Authority, although foreign exchange transactions with Caxton FX are regulated by HM Revenue and Customs. This email does not constitute advice for any foreign exchange transaction, nor is it intended as a solicitation for funds or recommendation to trade.
