Ongoing Dollar weakness benefits Pound and Euro
The early May bank holiday meant UK markets closed yesterday. Sterling continued its trend against the Dollar from last week, however, maintaining above 1.4650 throughout the day. Manufacturing PMI data will be released at 9.30am for the UK. It is expected that there will be very little change from March and it could show a slight growth in the manufacturing sector at 51.2.
The fears surrounding the EU referendum should take a back seat this week as local elections take place in the UK on Thursday. This should result in reduced volatility for the Pound until the weekend.
The Dollar lost more ground against its rivals yesterday with ongoing economic doubts and expectations of a dovish Fed policy continuing to undermine the Dollar strength. The US ISM manufacturing index was slightly weaker than expected at 50.8 for April from 51.8 previously, although it did hold above the 50.0 level for the second successive month.
As expected, Cable traded with little volatility around the 1.4600 level in the morning due to the UK bank holiday. The Dollar sell off pushed the pair towards the 1.4700 level as the US traders took the floor. EURUSD broke the 1.1500 level for the first time since August as the Dollar continues to lose ground against the common currency.
The Euro strengthened by 1.2%, dropping to the 1.2700s (after starting last week in the 1.2900s) as the European GDP (gross domestic product) exceeded forecasts: 0.6% quarter-on-quarter. The European Unemployment Rate also fell by 0.2%, printing at 10.2%.
In Australia, the Reserve Bank of Australia cut interest rates overnight following last week’s inflation data which was much weaker than expected. The move is a continuation of an easing cycle that started with rates at 4.75% back in mid-2011, and remained at 2.5% from mid-2013 to late 2014. The move will focus attention on both the Reserve Bank of New Zealand and Bank of Canada, both of whom are now more likely to lower their rates.
Data to watch: 9.30am UK April Markit Manufacturing PMI. 10am Euro March Producer Price Index YoY and MoM.