PMI data makes Pound wilt
Sterling dropped on Friday after the flash PMI for services and manufacturing showed a contraction. This was the first real post-Brexit decision data. The manufacturing PMI printed at 49.1, down from 52.1, whilst services PMI printed at the lowest figure since March 2009 at 47.4, down from 52.3. Although this data only represents a few weeks of information, the scale of the decline is alarming. As the Bank of England was maintaining a ‘wait and see’ mentality, this data increases the chances of a UK interest rate cut on August 4th.
The UK market will have to wait for GDP figures on Wednesday for data to provide impetus, until then it will be sentiment driven. Most traders will likely be looking toward August 4th, when the Monetary Policy Committee interest rate decision will take centre stage.
The Euro strengthened versus the Pound over the weekend after Friday’s flash Eurozone services PMI printed higher than expected. This data arrived shortly after the UK PMI data and against a backdrop of the ECB’s view that monetary policy action in September is unlikely. The single currency made gains of up to 1.4% against Sterling Friday lunchtime, trading around the 1.1876 levels before retracing its gains and ending the day at around 1.1948 figures.
German IFO business climate, expectations and current assessment are due this morning. They will indicate the confidence of German business in the German economy. This data is significant for the Euro after president Mario Draghi’s dovish comments last Thursday.
The Dollar managed to make the most of Sterling weakness on Friday following strong Manufacturing PMI data from the States. EURUSD also fell to lows of 1.0924, the lowest reading since the EU referendum.
There is positive sentiment surrounding the US economy at the moment, maintaining expectations that the Fed could shift to a slightly more hawkish tone with the possibility of a September rate increase. With a quiet data day in the States, all eyes are on Wednesday’s Federal Reserve statement.
Data to Watch: 9:00am EUR German Ifo Business Climate. 3.30pm USD Dallas Fed Manufacturing Business Index.