Pound steady after initial decline
The Pound came under renewed pressure yesterday with a dip to 6-week lows just below 1.2950 against the Dollar as the Euro pushed to 1.1723. The UK PMI construction index strengthened to an 8-month high of 48.4 for January from 44.4 the previous month and above expectations of 47.0. The new business component recovered to near unchanged as contraction in the residential and commercial sectors eased, but the civil engineering sector remained under pressure. Business confidence strengthened to an 18-month high as political uncertainty eased, although there were still underlying labour shortages. Following the data, markets priced out the potential for Bank of England rate cuts this year. Sterling had recovered ground into the data and pushed higher after the release. Stronger risk appetite was also a positive factor during the day as equities made strong gains. Sterling is currently edging higher this morning to trade just above the 1.3040 area.
US factory orders increased 1.8% for December compared with market expectations of 1.2%. There was also a recovery in the New York business conditions index to 45.8 from 39.1 previously which bolstered confidence in the outlook. Overall, the Euro drifted towards 1.1030 at the European close before settling around 1.1040 as the US currency secured net gains for the second successive day while commodity currencies struggled to make any significant headway. The US ISM non-manufacturing index will be released on Wednesday following a notable recovery for the manufacturing index with the ADP jobs data also scheduled. A strong reading for both would underpin confidence in the outlook.
Full Iowa Democratic Party caucus results were still not available, but latest data had Biden in fourth place while President Trump’s State of the Union address had little impact.
The Euro was unable to make any headway on Tuesday despite an increase in German bond yields. Overall yield spreads moved slightly against the single currency and there were concerns that the coronavirus would have a larger impact on the Euro-zone economy relative to the US due to the higher proportion of exports in final demand.
Overall, the Euro drifted towards 1.1030 at the European close before settling around 1.1040 as the US currency secured net gains for the second successive day while commodity currencies struggled to make any significant headway. As of writing The Euro is back around the 1.040 figure against the Dollar.
Data to watch
09.30 GBP – Final Services PMI
12.15 EUR – ECB President Lagarde speaks
13.15 USD – ADP Non-Farm Employment Change
15.00 USD – ISM Non-Manufacturing PMI
15.30 USD – Crude Oil Inventories