US Dollar rises for second day as stocks continue to stabilise
03/Sep/2015 • Currency Updates•
Sterling touched almost a three month low against the US Dollar yesterday, although ended the London session 0.15% higher versus the Greenback. Despite this, the Pound has still lost more than three percent on a trade weighted basis over the last two weeks alone, as investors continue to push back the timing for an interest rate hike by the Bank of England.
The major data point of the day yesterday came from Markit, with the release of the latest construction growth index. The flash PMI increased moderately from 57.1 to 57.3, slightly down on forecasts. This acceleration in growth was boosted last month by a pick-up in house building, pointing to a sustained recovery in both residential and commercial building activity. Hiring also continued at a rapid pace, while the sector was supported by a fall in the price of oil, which slowed the increase in raw material costs. The forward looking aspect of the survey suggests that construction firms are far more optimistic about business in the coming year, with only one in 20 of those surveyed expecting a contraction in business over the next twelve months.
Today is set to be a relatively muted day in the UK economy as far as economic indicator data is concerned. The monthly Markit services PMI likely to support the idea that growth in the UK is performing strongly.
Despite gains against the Pound, the single currency lost ground against a strengthening US Dollar yesterday, ending the London trading session 0.1% down.
There was little reaction in the Euro to the major economic release, the producer price index, given it came in in-line with consensus. Prices received by domestic producers decreased by 0.1% in the month from July, to an annualised -2.1%, the same as June’s reading. The subdued level of price growth for producers suggests that the headline rate of inflation will likely remain low, in spite of the ultra-loose monetary policy settings adopted by the European Central Bank. In other releases, unemployment in Spain increased by just over half a percent in August, rising by 21,700.
Today the European Central Bank will announcing its interest rate decision, almost certain to re-main unchanged at 0.05%, and, more critically, its monetary policy statement and press conference from Mario Draghi.
The US Dollar appreciated by 0.2% against its basket of major peers for the second straight day yesterday on the back of some relatively encouraging data and a stabilisation in global stocks.
The crucial release of the week will be the nonfarm payroll release on Friday; however, yesterday we got an early indication regarding the strength of private sector employment, which missed expectations. The ADP employment report suggested that private payrolls increased by 190,000 last month, below expectations of a 201,000 increase, although slightly up on a month previous. The figure does, however, continue to point to a tightening labour market, ahead of tomorrow’s more comprehensive labour report. Meanwhile nonfarm productivity, a measure that represents output in the non-agricultural sector, rose by an impressive 3.3% in the second quarter. Productivity was above forecasts, and revised significantly higher from the initial 1.3% estimate.
Meanwhile, the historically volatile mortgage applications for last week soared by its most since January, increasing by 11.1%. Factory orders also increased, up by 0.4% for the month of July, although almost half the increase that was expected.
Mostly second-tier data releases in the US economy today means that attention will focus on the ECB’s press conference. However, the services PMI from Markit and latest jobless claims figures will be worth noting in the early afternoon.
Rest of the world
The Australian Dollar plunged to a fresh six-and-a-half year low yesterday after growth in the Australian economy disappointed expectations. The economy grew by a meagre 0.2% in the second quarter of the year, its slowest pace in two years and well short of the 0.4% that was forecast.