Dollar dives just as Sterling self-confidence returns
The US Dollar declined sharply overnight after the ISM non-manufacturing PMI showed a drop to 51.4 in August, down from July’s 55.5, its weakest figure since 2010. Disappointing jobs and manufacturing data leading up to this have suggested that US economic growth is likely to remain tepid in the third quarter of 2016. This has consequently fuelled speculation that the Fed might refrain from raising interest rates in 2016. The Pound surged to a new two-month high versus the Dollar and finished the trading session above the 1.3400 levels, up 0.9% on the day.
Sterling maintained a firmer tone on Tuesday as it held above 1.1900 against the Euro. The Bank of England received much stronger offers in the latest gilt repurchase operation. Prepare for a fresh bout of volatility today throughout the European session due to Mark Carney’s testimony before Parliament’s Treasury Select Committee on the UK’s inflation and economic outlook.
No doubt there will be some robust exchanges, given that some MPs may feel the Bank overreacted, both in its warnings before the Brexit vote and also in its subsequent response to the vote. Also released this morning are industrial and manufacturing production data and the NIESR GDP estimate.
The Euro weakened by half a percent versus Sterling initially yesterday. However, it ended the European trading session at around the same levels it opened at as the Eurozone GDP hit expectations at 1.6%, allowing the single currency to recover its losses earlier on in the session.
The Euro opened this morning’s session trading at the 1.1925 levels against the Pound. The European Central Bank (ECB) interest rate decision on Thursday will be closely watched and should set the tone for the Euro. Mario Draghi will be acutely aware that not a lot has improved since his last monetary policy change. The temptation to wait to see what the US does at the end of the month may be too powerful to resist.
Data to watch: 7am German July Industrial Production YoY. 9.30am UK July Manufacturing Production YoY, July Industrial Production YoY. 10am Inflation Report Hearings. 3pm UK NIESR GDP Estimate August. 7pm US Fed’s Beige Book.