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Labour Day lows for the Dollar

Labour Day lows for the Dollar

GBP
The UK construction PMI (Purchasing Managers’ Index) index declined to 51.1 for August from 51.9 the previous month. This was below consensus expectations of 52.0 and the lowest reading for 12 months with a stronger performance in residential construction offset by weakness in the commercial sector.

Although there was only a limited impact, the data slowed any potential Sterling momentum following the stronger than expected manufacturing data released on Friday. The UK currency was also hampered to some extent by Brexit concerns, especially with expectations of further disagreement over the financial settlement.

Sterling was trading at levels of 1.0893 against the Euro and rallied to around 1.0840 late in the morning session before consolidating near 1.0870.

Tuesday’s PMI services-sector report will have an important impact on sentiment with Brexit developments also monitored closely.

USD

The Dollar started the week on a poor note following Friday’s rebound and US payrolls coming in below expectations in August (156k). In addition, heightened geopolitical risks surrounding North Korea, as well as Hurricane Harvey, have been keeping the demand for the Greenback subdued. This morning, the Dollar trades around the 1.2920 level against the Pound and 1.1890 against the Euro.

The broader picture for the Buck remains neutral, always against the backdrop of uncertainty in the US political arena and unabated skepticism on the ability of the Trump’s administration to deliver a tax reform plan and other (promised) fiscal stimuli. In the near term, markets are not yet paying attention to the ‘debt ceiling’, which is another issue that could be a potential source of Dollar weakness if not dealt with in time.

Data-wise today, July’s factory orders are next on the agenda along with speeches by FOMC’s L.Brainard (permanent voter, dovish), Dallas Fed R.Kaplan (voter, hawkish) and Minneapolis Fed N.Kashkari (voter, dovish).

EUR

The Eurozone Sentix investor confidence index showed a slightly firmer reading yesterday at 28.2 for September from 27.7 the previous month, with the latest reading above consensus expectations. The overall impact on the Euro was limited, however.

There was significant caution ahead of Thursday’s European Central Bank (ECB) Council meeting given uncertainty over the bank’s Euro stance. Further, there were no comments from central bank sources during the day.

In the market today we can expect the final reading of August Eurozone Services, composite PMIs, and July German manufacturing orders. The final services PMI is expected to assert the drop back to 54.9 in August from July’s 55.4 whilst the composite reading should be confirmed at 55.8, up from 55.7 in July. Together with the much stronger than expected ESI confidence readings, the arguments for the ECB will gradually reduce the additional amount of stimulus that is still being pumped into the economy every month.

Data To Watch:
9:00am EUR Markit Services PMI (Aug), Markit PMI Composite (Aug)
1:00pm USD FOMC Member Brainard Speech
3:00pm USD Factory Orders (MoM) (Jul)
6:10pm USD FOMC Member Kashkari Speech
11:05pm USD FOMC Member Kaplan Speech

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