Sterling rises on the back of the Chancellor’s Autumn Statement
04/Dec/2014 • Currency Updates•
A strong performance from Sterling on Wednesday after the Chancellor’s Autumn Statement caused the UK currency to appreciate sharply against its major peers, climbing 0.45% on the Dollar and a staggering 0.95% on the Euro.
Fears of an economic slowdown in the UK were eased yesterday after it was announced the services sector grew at a faster than expected in November. The headline PMI index, measuring activity in the services sector, increased from 56.2 in October to 58.6 last month. This was boosted by the hiring of new people to cope with rising workloads according to the Markit. Based on this month’s PMI releases, the economy is now expected to grow by 0.6% in the fourth quarter, down from 0.7% in Q3.
The main market event of the day, however, was the release of George Osborne’s Autumn Statement at the House of Commons. In his final Autumn Statement before the general election in May, the Chancellor emphasised he expected the UK economy to grow by 3% this year, up on previous forecasts, and by 2.4% next year. Unemployment is expected to decline to 5.4% in 2015, while government borrowing is forecast to fall every year before reaching a surplus in 2018-19.
Most market volatility today will occur at midday when the Bank of England releases its interest rate decision and monetary policy statement.
The single currency lost ground on its major counterparts yesterday after another set of dismal PMI’s, declining by 0.5% on the Dollar.
Another dismal set of data was released in the Eurozone on Wednesday. The services PMI for Germany, France, Spain and the wider Eurozone all fell on last month. Service sector growth for the Eurozone was at its lowest since January at 51.1, while the same measure in Germany fell to 52.1, its lowest level since August 2013. Worryingly, France’s services industry has now contracted for the past five consecutive months, falling below expectations to 47.9. Elsewhere, Eurozone retail sales returned to growth in October at 0.4% MoM, boosted by sales of non-food products and fuel.
A busy early afternoon in the world markets today as the European Central Bank will also be releasing its interest rate decision and monetary policy statement; the announcement will begin at 12:45pm UK time.
The greenback continues to look strong as the US Dollar index reached another eight-and-a-half year high amid a continuing fall in oil prices and a strong US non-manufacturing performance. The currency climbed by 0.3% against its major peers.
The US economy was given a further boost yesterday afternoon as the Institute of Supply Management announced that non-manufacturing growth increased in November, returning close to August’s three-and-a-half year high. The non-manufacturing PMI was substantially above forecast at 59.3, up from October’s 57.1. In other releases, private employers in the US added 208,000 jobs in November according to ADP, although this was slightly below target. Elsewhere, mortgage application fell by 7.3% last week, although this is a very volatile number and the market reaction was muted.
USD volatility will be largely dependent on the key announcements from the Bank of England and European Central Bank today; however, there are a number of second tier releases, predominately jobless claims data at 1.30pm UK time.
Rest of the world
Malaysia’s Ringgit reached its weakest level in almost five years as concerns grow that the government will be unable to achieve its fiscal deficit target amid falling oil prices. Elsewhere, the Bank of Canada maintained its interest rate at 1% as expected, with the country’s strong exports beginning to be reflected in increased investment and employment.