Foreigners find GBP attractive
UK PMI manufacturing beat expectations by rising to 55.1 for July from a revised 54.2 previously. The orders component was strong notably in export orders which increased at the fastest pace for over seven years. The data provided net support to confidence in the economy and the latest UK CBI survey reported export orders were growing at the fastest pace since 2011, although the NIESR GDP forecasts were unchanged from their previous survey.
Strength in oil and commodity prices initially supported the Pound, although a sharp retreat in oil prices during US trading triggered an element of profit taking in Sterling. The Pound peaked just above 1.3240 against the Dollar before retreating to the 1.3200 area. However, against the Euro, the Pound declined to the 1.1190 area.
There will be caution ahead of tomorrow’s Bank of England policy decision, with a majority of investment banks expecting no change in rates but some potentially hawkish elements in the statement.
The Greenback saw some relief overnight as the US Dollar index looks to claw its way back from its lowest levels since May 2016, trading slightly higher at 93.05 and up 0.22% for the day.
Despite a break from the incessant waves of US Dollar selling, there remains a nervy overtone in the currency markets as the fear of the unknown sets in, with US political uncertainty accentuating current market unease.
There was a decline in the ISM manufacturing index to 56.3 for July from 57.8 the previous month, although there were still robust readings for the orders and production components. There was also an increase in the prices index for the month which curbed expectations that inflation would stay at very low levels.
US economic data had little impact on the December rate hike probabilities but investors believe the current political tumult in Washington will lessen the chances of another Federal Reserve rate hike in 2017.
USD should stay centre stage in light of the publication of the ADP report, where consensus looks for the US private sector to add 185K jobs in July ahead of the more significant non-farm payrolls expected on Friday.
Data released yesterday in the Eurozone showed real GDP in Q2 grew by 0.6%, continuing its pattern of growth (2.3% annually). Year-on-year, real GDP has grown by 2.1%, with this stage marking the 17th consecutive quarter that real GDP growth has followed a sequential basis.
Despite strong GDP growth, some pressure came from the release of the flash manufacturing Purchasing Managers Index (PMI) for the Eurozone that weakened by 0.2 to 56.6 in July against the expected 56.8.
Modest inflationary pressure directed bond markets and, given the strong appreciation of the Euro witnessed over the summer, the European Central Bank (ECB) will face a challenge to reach its inflation target set below, but close to, 2% over the medium term. It is expected that the positive environment will continue through August as fears over the ECB tapering/exit are being withheld after the recent strong appreciation of the Euro.
Data To Watch:
7:00am EUR Non-monetary policy’s ECB meeting
8:30am GBP PMI Construction (Jul)
9:00am EUR Producer Price Index (YoY) (Jun), n/a EUR 10-y Bond Auction
12:15pm USD ADP Employment Change (Jul)