Markets are favouring Sterling today, with Pound Euro and Pound US Dollar exchange rates on the rise despite mixed domestic data. Despite some strong manufacturing results, the Euro is on the decline, while the US Dollar is mixed ahead of this afternoon’s ecostats and policy announcements.
- UK shop prices continue to decline, but inflation still likely in 2017
- Euro weakens; strong Eurozone manufacturing data fails to impress
- US Dollar cautious ahead of busy data day
- US ADP employment change, ISM Manufacturing and Fed meeting in focus
Afternoon Update, 3rd Feb; The US Dollar has slumped against the Euro, yet remains in positive territory versus the Pound, after the day’s labour market data. The US non-farm payrolls report clocked in significantly above forecast at 227,000, but wage growth managed just 0.1% on the month. The ISM non-manufacturing composite was also disappointing, edging down from 56.6 to 56.5, instead of rising to the predicted 57.
Morning Update, 3rd Feb; Correctional trading is helping the Pound recover after yesterday’s slump. The US Dollar is edging lower ahead of today’s key employment data. Markets are expecting a strong performance from the non-farm payrolls report, considering the ADP employment change figure earlier in the week showed growth nearly 100,000 above forecast.
Midday Update, 2nd Feb; The Pound has tumbled following the latest Bank of England (BoE) monetary policy meeting. Although the Monetary Policy Committee (MPC) revised their 2017 GDP forecast notably higher, from 1.4% to 2%, their inflation outlook for this quarter was only increased by 0.2% to 2%. Considering the recent surges above forecast for the consumer price index, investors had been hoping for a higher outlook, which would have strongly suggested a rate cut may be necessary.
Morning Update, 2nd Feb; The US Federal Reserve left interest rates on hold after yesterday’s policy meeting, just as markets had expected. The accompanying statement was largely a reprint of the previous meeting’s, but some subtle changes in wording suggested the Fed was becoming more hawkish on the economy. It did nothing to suggest that the pace of normalisation would be any faster than the markets are currently anticipating, which has undermined the US Dollar today.
UK Data Soft, but Approaching Vote on Article 50 Bill Lifts Pound Euro, Pound US Dollar
Data so far today has painted a mixed picture, but the Pound Euro and Pound US Dollar exchange rates have recorded notable advances.
The British Retail Consortium’s (BRC) latest shop price index showed a surprise acceleration in price decline during January, falling -1.7% against forecasts of a slow from -1.4% to -1%.
While this contradicts reports and claims that weakened Sterling has sparked a significant rise in inflationary pressures, BRC CEO Helen Dickinson OBE claimed signs of rising price pressures were inevitable this year.
‘Retailers’ focus will be on protecting their customers from the effects of increasing input costs, but with the cost of doing business rising and margins and profits being squeezed, their efforts will require the support of public policies that help them keep prices low for shoppers. This means capping the annual uplifts in business rates and ensuring no new tariffs remains a core objective of the negotiations on exiting the EU.’
Meanwhile, house price growth has slowed more-than-forecast, with the Nationwide index undercutting projections by ten basis points on the month and the year to hit 0.2% and 4.3% respectively. Also, the UK Markit manufacturing PMI has edged lower by twenty basis points to 55.9, although this was forecast. What has surprised is the sharp increase in input prices, with the index leaping from 77.7 to 88.3; the highest score on record.
Traders are cautiously optimistic, however, as MPs prepare for the first vote on the Article 50 bill. This would take it through to the next stage, whereby it can be amended by the House of Commons, bringing traders closer to getting some answers regarding what kind of Brexit the UK is facing.
Euro Unimpressed by Strong January Manufacturing Performances
Finalised Eurozone PMIs have failed to give the common currency a boost today, with Pound Euro exchange rates falling below opening levels.
The Italian index edged lower, slowing from 53.2 to 53, although sub-indices showed the fastest pace of job creation in nine months.
While the German manufacturing PMI undershot forecasts by ten basis points, the rise from 55.6 to 56.4 still showed industry growth at its highest level for three years.
France, meanwhile, posted its strongest manufacturing performance in nearly six years after the PMI rose ten basis points to 53.6.
Overall, this pushed the Eurozone manufacturing index up 0.3 points to 55.2, just above forecast levels.
US Dollar Soft Ahead of Key Economic Data
Traders are holding fire on adjusting their US Dollar positions ahead of the day’s busy data docket.
The only notable data left for release today comes from the US. The slew begins with the ADP employment change figure which, while bearing no correlation, traders often use to guess the performance of the much more influential non-farm payrolls figure.
Shortly after will be the ISM manufacturing index, which is expected to edge up from 54.7 to 55. Considering President Trump’s fiercely anti-trade, anti-globalisation and anti-Mexican policies and opinions are motivated by a desire to reverse the decline in the American manufacturing sector, the already influential PMI could find itself enjoying even more prominence under the new administration.
Finally, this evening brings the latest monetary policy announcements from the Federal Reserve. No changes are expected, but traders will be hoping for hints on the likely timing of the next interest rate hike; currently pegged for June.
Interbank Pound Euro, Pound US Dollar Exchange Rates
At the time of writing, the Pound Euro exchange rate was trading around 1.1671, while the Euro Pound exchange rate was trending in the region of 0.85.
The Pound US Dollar exchange rate was trending around 1.26, while the US Dollar Pound exchange rate was trading in the region of 0.79.