Raphael Sonabend, FX Analyst
The first of the three UK sectors PMI data was released yesterday in the form of manufacturing PMI. Despite beating predictions, the pound fared poorly against the majority of counterparts in yesterday’s session and couldn’t hold any gains. A strong day was seen for the euro as Italian and Spanish manufacturing PMIs both exceeded forecasts. Italian PMI hit 49.9, which is just below the 50.0 mark that signifies the end (or at least a pause) in contraction. This morning saw the RBA cutting their cash rate from 2.50% to 2.25%, a decision that was expected but had not been fully priced into the markets. The dollar received a push from this decision as commodity currencies fell as a result, with the exception of the Loonie, which was boosted from rising oil prices. Today’s focus will be on UK construction PMI this morning, forecast to drop slightly, we could see another day of Sterling weakness.
GBP/EUR: Currently trading at 1.3246
- A poor day for Sterling yesterday as the euro gained a cent over the course of the day, despite UK manufacturing PMI beating predictions. Manufacturing data saw a rise to 53.0 from 52.7, above the forecast 52.9. This slight increase was led by exports as input costs saw the biggest drop since May 2009, a positive effect of falling oil prices. Spanish unemployment change this morning was forecast to rise from -64.4K to 83.4K but in fact only hit 78.0K. Despite this result being better than forecast, the euro has traded on a weaker footing since this release.
- UK construction PMI will lead the way for the rest of today’s trading. Given the trends we saw yesterday after the manufacturing data was released, we could see another day of Sterling weakness as construction is forecast to drop off from 57.6 to 56.9.
GBP/USD: Currently trading at 1.5007
- Good UK manufacturing figures, coupled with a series of poor announcements from the US, saw Cable climb to 1.5083 before meeting resistance and falling in the dollar’s favour. US ISM manufacturing PMI fell to 53.5 from 55.5, below the forecast 54.9, and registered the slowest growth pace in a year. Commenting on the results of this survey, companies remained positive about the outlook for US manufacturing.
- US data will take a step back today with the only data of note being factory orders this afternoon, given recent manufacturing data this is expected to drop off slightly but is likely already priced into the markets. UK construction PMI this morning could help dollar gains throughout the day.
EUR/USD: Currently trading at 1.1325
- The euro gained on the dollar throughout yesterday’s session as US ISM manufacturing PMI fell below predictions. This morning’s data has been mixed as Spanish unemployment change rose significantly however beat predictions, this led to slight volatility this morning with level trading being the ultimate outcome.
- A quiet data day is due and we therefore anticipate another session of level trading. If the Royal Bank of New Zealand’s (RBNZ) governor Wheeler speaks with particular dovish sentiment tonight, we could see USD strength as traders invest in safe-haven currencies over higher-yielding ones.
GBP/AUD: Currently trading at 1.9573
- The Aussie gained on the pound yesterday before falling four cent as a result of the Royal Bank of Australia cutting interest rates by 25 basis points to 2.25%. In their rate statement, the RBA once again stated that the Aussie is overvalued and a lower exchange rate will be required to help balance growth. Their decision to cut the rate is ‘expected to add further support to demand’ thereby aiding growth and keeping inflation within their target range.
- The pound is likely to continue to gain on the AUD throughout today’s session on the back of this morning’s rate cut, which appeared not to have been fully priced into the markets. Aussie weakness could be extended tonight if RBNZ’s Wheeler’s speech is perceived as overly-dovish.
GBP/NZD: Currently trading at 2.0847
- The Kiwi gained on the pound throughout yesterday’s session despite UK manufacturing PMI beating forecasts. As the RBA cut their interest rates early this morning the Kiwi fell against the pound by three cent; GBP/NZD hit the highest level since Sept-2014.
- After the UK construction data is released this morning, focus will shift to New Zealand for the rest of the day’s trading. This evening NZ employment change and unemployment rate data will be released and tonight the RBNZ’s governor Wheeler will speak. After a dovish statement from the RBNZ last week, similar sentiment is likely to be seen in Wheeler’s speech tonight. Kiwi weakness is therefore a strong possibility.
GBP/CAD: Currently trading at 1.8872
- A strong rise in oil prices saw this rate fall from 1.925 to 1.886 throughout yesterday’s session. Whilst the Loonie was lent some strength on the back of this rise and oil has seen two consecutive days of straight gains, it is still too early to call a low.
- Canadian Raw Materials Price Index (RMPI) this afternoon is forecast to fall from -5.8% to -8.8% however Loonie trading is likely to continue on the back of oil price movement as RMPI data is usually considered medium-impact. Another day of oil gains could see CAD strength extended into today’s session.
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