Sterling buoyed by exceptional construction PMI as UK recovery continues, whilst US also show booming manufacturing sector

Tom Tong04/Sep/2013Currency Updates

USD

The dollar traded yesterday with not much volatility against most major currencies despite good economic data in the form of the ISM Manufacturing PMI coming in 55.7 (above the consensus of 54.0). Analysts have attributed this holding pattern to a flurry of geopolitical events concerning the situation in Syria and the prospect of military intervention in the region. This came in the form of leaders of the US opposition Republican party saying that they agree with President Obama’s push for military action.

Today we have the release of the Fed’s Beige book which reports on the state of the federal economy in each of the 12 federal districts. That being said the markets will also be watching the commencement of the G-20 meeting starting tomorrow which will hopefully give some more information as to the prospect of intervention in Syria. Non-Farm Payrolls are due to be released on Friday and as always these figures dominate the market as they highlight the short term future of the US economy as well as affect the tapering of Fed Quantitative easing.

GBP

Yesterday we saw Sterling trade positively against its major counterpart the euro after a report showed a healthy increase in the UK construction Output showing the fastest expansion since September 2007 jumping to 59.1 amid the consensus of 56.8 and a previous figure of 57. However yesterday the GBP/USD pair failed to sustain any growth made by the UK PMI induced gains, and even traded lower during the American session after very briefly falling to negative ground for the day in the wake of positive US data. We saw the pair then stabilise and manage to erase intra day loses to trade nearly flat after the latest pull-back. A consistent set of positive data will increase short term money rates in the UK and increase pressure on BOE governor Mark Carney’s Forward guidance plan.

According the OECD the UK GDP is likely to grow by 1.5% this year, up from the 0.8% previously predicted. Recent data in the UK has pointed towards robust growth in the third quarter. The OECD also cited recent changes to housing policy in the UK as a positive effect on the growth expectations. While we see substantial growth in the UK and global economies this does not mean that the underline problems facing the UK economy have disappeared, one of the largest is the global debt crisis that has not gone away with reduced private sector leverage in many cases being compensated for by increased government debt.

Little to no data out of the UK today Markit Services PMI will be released around 8.30AM.

EUR

The euro struggled against the pound and dollar reaching a new 6-week low against the greenback and dropped to its lowest level against sterling in over 3 months. Merger and acquisition volumes decreased rapidly in the second quarter of the year 42% down on the previous month of 2012.

There was also a minimal dip in Spanish unemployment figures further confirmation that Spain has not seen a significant employment rise in 6 months, with the rate holding at 26.3% second only to Greece. A small improvement in eurozone PPI figures released yesterday morning showed little gains. A 0.3% rise from the month of June was recorded in relation to the eurozone’s wholesale goods following several months of deflation.

Crucial economic data out of the eurozone today includes; eurozone PMI figures for August released this morning expected to remain at 51 as well as the eurozone’s GDP figures (QoQ) and (YoY) previously 0.3% and 0.7% expected both to remain at their previous levels and eurozone retail sales figures foretasted to improve from -0.9% to -0.3%.

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Written by Tom Tong

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