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Political risk back on menu for Sterling

Political risk back on menu for Sterling

GBP
Sterling fell past 1.3600 to trade 1.2% lower against the US Dollar after UK manufacturing PMIs produced the lowest figure for 17 months, dropping to 53.9 for April from last month’s revised 54.9. The Euro also strengthened to 1.1360 despite its own woes as Sterling suffered bad press over the ongoing row surrounding Customs Union membership and speculation surrounding a leadership challenge to Theresa May.

Growth in unsecured lending, including loans, credit cards and overdrafts, slowed sharply in March to produce the weakest figures since November 2015. The data triggered fresh doubts on the UK growth outlook and futures markets indicated that the probability of a May rate hike had fallen to 15%.

There was no recovery overnight as the BRC reported weakness in non-food shop prices and the Pound briefly dipped below 1.3600 before rebounding.

USD

Headline US ISM manufacturing index dropped to 57.3 for April and fell short of forecasts at 58.4; there was also a weaker reading for the employment component. On the positive side of the index, orders held firm above the 60 mark for the 12th month straight.

The price index recorded its highest level since April 2011, rising to 79.3 and posted higher raw materials prices for the 26th consecutive month. Upward pressure on costs continued as widespread evidence of capacity constraints and longer delivery times were present, especially in the transport sector. Further, the US currency index pushed to fresh three-month highs just above 92.50 which helped the Dollar make gains against its rivals. Cable dropped below the 1.3600 level yesterday before recovering slightly whilst, against the Euro, the Dollar also made gains to the 1.2000 level.

Markets will be looking at today’s Federal Reserve statement for information on future interest rate hikes, with a relatively hawkish tone expected.

EUR

The Eurozone economic calendar was light yesterday, especially with the majority of markets closed for Labour Day holidays. The Euro trading power was very much out of the single currency’s hands as a result and the Euro fell below the 1.2000 psychological barrier, trading down 0.7% against the US Dollar.

Today, German and Eurozone manufacturing PMI with the first quarter Eurozone GDP due will headline the European session and keep the market interested.

Data to Watch:

08:00 EUR Non-monetary policy’s ECB meeting
08:15 CHF Real Retail Sales (YoY) (Mar)
08:55 EUR Markit Manufacturing PMI (Apr)
09:00 EUR Unemployment (Mar)
09:30 GBP PMI Construction (Apr)
10:00 ITL Gross Domestic Product (QoQ) (Q1)
10:00 ITL Gross Domestic Product (YoY) (Q1)
10:00 EUR Gross Domestic Product s.a. (YoY) (Q1)
10:00 EUR Gross Domestic Product s.a. (QoQ) (Q1)
10:00 EUR Unemployment Rate (Mar)
13:15 USD ADP Employment Change (Apr)
19:00 USD Fed’s Monetary Policy Statement
19:00 USD Fed Interest Rate Decision

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