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A volatile day ahead for Sterling

A volatile day ahead for Sterling

Sterling experienced extreme volatility throughout the day yesterday, reaching 4-month highs against the Dollar before a sharp reverse during the trading session. Poor PMI manufacturing data showed a retraction in the manufacturing sector for April, printing at 49.2 – down from 50.7 for March. This is the first reading for three years below the key 50.0 threshold. This has reinforced the underlying concerns around the overall economic outlook for the UK, meaning that markets will likely remain volatile today.

Construction PMI figures will be released at 9.30am today, with services PMI data to follow tomorrow. Further weak data from the UK could see GBPUSD retreat below the 1.45 threshold. However, markets are predicting no change from March’s data for both PMI figures. Expect little news on the EU referendum today ahead of tomorrow’s local elections.

The Dollar sell off continued during the early morning yesterday, with the Dollar index falling to its lowest level since January 2015. Poor Chinese manufacturing data revived concerns over a global economic slowdown, which put pressure on the Greenback as it might impact the Fed’s decision on a June rate hike.

Atlanta Fed President Lockhart and San Francisco Fed President Williams spoke yesterday and both were quite bullish on the US economy. Lockhart maintained his position that June would be a meeting to discuss a potential increase in interest rates, the probability of which would be higher than what is being priced in by markets at the moment. Williams remained optimistic on the economic outlook, stating that employment gains and inflation are on the right trajectory for a rate hike.

Cable reached highs of 1.4769 on Tuesday morning, before poor UK data put the Dollar bulls firmly in control. The Dollar erased last week’s losses as the pair fell 1.63% from the previous highs, opening this morning at 1.4534. EURUSD reached the highest level since August 2015, hitting daily highs of 1.1616 in the morning as China fears undermined the Dollar strength. The Dollar did claw back some losses, with the pair finding support at the 1.1500 level. It opens this morning at 1.1511.

Euro strength continued on from the end of last week as we saw GBPEUR fall by 0.5%. Eurozone Markit economics services PMI and composite PMI for April is due today and European Council President Tusk has called for a deal in Greek debt talks by the end of the month. The Greek reform agreement is needed to complete the review of its third international bailout package.

Data to watch: 8.55am German April Markit Services & Composite PMI. 9am Euro April Markit Services & Composite PMI. 9.30am UK April Construction PMI. 1.15am US April ADP Employment Change. 1.30pm US March Trade Balance. 2.45pm US April Services, Non-Manufacturing & Composite PMIs. March Factory Orders month-on-month.

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