Can Super Thursday spur Sterling?
UK construction PMI declined to 51.9 for July, well below consensus forecasts of 54.4 and the weakest reading for 11 months. There was a slowdown in new orders growth, especially for the commercial sector as political and economic uncertainty had a negative impact.
Sterling found support above 1.3200 against the Dollar but drifted lower against the Euro to 1.1175, showing resilience despite the data. Markets were reluctant to short the Pound ahead of the Bank of England policy decision.
There is potential for sharp currency moves triggered by the monetary policy decision and services-sector PMI data. Interest rates are widely expected to be unchanged, but former Deputy Governor Gieve called for an increase in rates which maintained underlying uncertainty. The inflation report and bank rhetoric will also be very important for Sterling.
The US Dollar was sold off once again yesterday due to rising geopolitical tensions surrounding the new US sanctions on Russia. This was after the EU Chief Juncker said that the EU stands ready to retaliate if the new US sanctions hurt economic interests within the Eurozone. Rising scepticism over another rate hike by the Federal Reserve (Fed) (likely in Q4) has also been playing its part in the USD decline.
Adding to the USD sell-off, a slew of Fed speakers left the market largely unimpressed. This included St Louis Fed President Bullard, who remained worried about low inflation and warned against further rate hikes.
After bottoming out at lows nearing the 92.40 level on Wednesday, the US Dollar Index, which tracks the Greenback against its main competitors, has regained some attention and is now hovering over the 92.85 band.
In the US data space, the usual weekly report on the labour market is due, seconded by ISM non-manufacturing, Markit’s services PMI, and June’s factory orders.
Yesterday, the Euro maintained a resilient tone against the Dollar with support just above the 1.1800 level and fresh 30-month highs just shy of 1.1900. Due to the weaker Greenback, there is underlying support for the currency pair despite evidence of overbought conditions.
There were no major Eurozone developments while German benchmark yields limited Euro support on yield grounds, trading just shy of the 0.50% level. The European economy as of late has outperformed expectations. A cascade of strong electoral victories for pro-European politicians in multiple countries boosted optimism further, combined with recent triumph President Macron and his intentions for a pro-growth economy.
In the Eurozone today, we see the Economic Bulletin Report, followed by Markit Purchasing Managers Index (PMI) Composite and Markit Services PMI data for July.
Data To Watch:
8:00am EUR Economic Bulletin, Markit PMI Composite (Jul), Markit Services PMI (Jul)
11:00am GBP BoE Asset Purchase Facility, BoE Interest Rate Decision, Monetary Policy Summary, BOE MPC Vote Unchanged, BOE MPC Vote Cut, BOE MPC Vote Hike, Bank of England Minutes
11:30am GBP BOE’s Governor Carney speech
12:30pm USD Initial Jobless Claims (Jul 28), Continuing Jobless Claims (Jul 21)
1:45pm USD Markit Services PMI (Jul), Markit PMI Composite (Jul)
2:00pm USD ISM Non-Manufacturing PMI (Jul)
2:00pm USD Factory Orders (MoM) (Jun)