US Dollar (USD) Still Weak Despite Strong Manufacturing PMI
The Markit US PMI for Manufacturing shows that the sector has accelerated unexpectedly in January, with the index rising from 51.2 to 52.7 despite a slowdown to 51.0 planned. Existing Home Sales also performed well, after a -10.5% drop in December, rising 14.7% month-on-month instead of the forecast 9.2% increase.
Even with the positive data, the ‘Buck’ (USD) is still performing poorly against most of the majors, although it has extended a 0.4% lead against the Euro (EUR).
BoE Policymaker: ‘UK Consumer Debt Does Not Pose Immediate Risk’
Bank of England (BoE) policymaker Jon Cunliffe has dismissed fears that the UK recovery is driven by unsustainable consumer debt. Speaking on BBC radio, Cunliffe remarked that, while the BoE was keeping an eye on bank lending to consumers, ‘At the moment, I think it’s containable at the level it’s growing but it’s something you need to watch.’ While BoE Chief Economist Andy Haldane has claimed a rate cut might be the best course of action for Britain, Cunliffe told the Financial Times that he believed the next move in interest rates would be an upwards revision.
George Osborne will be breathing a sigh of relief today as UK borrowing figures printed better than expected, bolstering the Pound Sterling (GBP) exchange rate. Borrowing dropped from £13.5 billion in November to £7.5 billion in December, -£3 billion less than economists had predicted. However, the figures take the total deficit for the financial year so far up to -£74.2 billion, meaning that George Osborne will need a budget surplus of £5.3 billion in the final quarter of the year in order to meet his target of having the deficit at £68.9 billion.
The better-than-expected figures have seen the Pound performing well against the Euro (EUR) and US Dollar (USD).
House price and mortgage data for the UK is due to be released on Wednesday.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Positive after Eurozone PMIs Disappoint
The Euro has been softened today by disappointing results from Markit PMIs, most of which show a greater-than-expected slowdown in economic activity. The French Services PMI was the only index which printed positively, showing an end to contraction and slightly better growth than forecast, rising to 50.6 instead of 50.2. The French Composite dropped despite a rise having been forecast, while the composite, manufacturing and services PMIs for France, Germany and the Eurozone all fell by more than expected.
Meanwhile, European stock markets have rebounded thanks to comments from European Central Bank (ECB) Governor Mario Draghi, which have hinted that stimulus measures could be increased during the March meeting. While the Euro fell, stocks rose as investors turned away from the prospect of a weakened Euro to more risky assets. The Italian FTMIB index rose by 1.27%, the German DAX by 1.8%, the Spanish IBEX by 1.92% and the French CAC by 2.1%.
Surveys regarding the current and future expectations of the German economy will be released on Tuesday.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate: Soft on Lack of Oil Prosperity
It seems that the current global fears over the Chinese economy haven’t had much of an impact on the sentiment of US businesses. A new survey by the American Chamber of Commerce in China (AmChamChina) has shown that 80% of US businesses hold a positive outlook on China’s economic progress over the next five years. Despite all the worsening conditions, that represents a drop in confidence of just 4%. Retailing is the most optimistic US sector, with services and manufacturing coming in second and third place respectively.
71% of US companies operating in China made a profit in 2015, almost unchanged from the previous year, although the number of businesses experiencing revenue growth dropped from three quarters to 61%. However, businesses still reported a better performance in China than in other markets.
However, the US Dollar is soft today thanks to emerging realisation that the US economy is not benefiting from the drop in global oil prices in the same way as previous occasions. An accelerated rate of decline in prices has forced energy companies to cut investment and reduce staff numbers, while the savings being passed onto consumers are being saved, not spent. At the beginning of last year JPMorgan Chase economists predicted the low cost of oil would contribute an extra 0.7% to US economic growth, but their latest estimate is for a -0.3% drag on expansion.
The Markit PMI for US Manufacturing and domestic Existing Home Sales figures are due out later today.
Current GBP/EUR, GBP/USD Exchange Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading in the region of 1.3160, while the Euro to Pound Sterling (EUR/GBP) exchange rate is trending around 0.7596.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending around 1.4208, while the US Dollar to Pound Sterling (USD/GBP) exchange is trading around 0.7010.