Sterling Dips On Weak Confidence
According to data, the UK PMI manufacturing index declined to 53.3 for October from 54.1 while the services-sector index retreated sharply to 52.3 from 56.1 as confidence weakened further. There were further sharp declines in employment for the month, but manufacturing confidence strengthened. The data maintained concerns over the outlook with fears that the economy would stall for the fourth quarter.
Sterling did spike higher following reports that France was preparing to make concessions on fishing in the Brexit trade talks. The UK currency failed to hold the gains above 1.3100 against the Dollar and dipped to 1.3050 as the US currency was able to recover some ground.
CFTC data recorded a decline in short Sterling positions to a 4-week low of 2,000 contracts for the latest week from 10,000 previously, reinforcing evidence of a lack of confidence in direction. Trade rhetoric and risk trends continue to dominate and will be watched closely in the short term.
The US manufacturing PMI index increased marginally to 53.3 from 53.2 and close to consensus forecasts while there was strengthening in the services sector to a 20-month high of 56.0 from 54.6. New business growth slowed slightly, however, and there was a dip in export orders and there was a slowdown in employment growth.
There were no major developments surrounding a fiscal stimulus during the weekend with markets less confident of support measures ahead of the elections while Pelosi noted on Sunday that she expected a White House response to the latest proposals on Monday. Democrats will be less willing to compromise if they are confident in securing an election victory next week. Political rhetoric and opinion polls will be watched closely in the short term.
There was a significant impact from October Euro-zone flash PMI business confidence data released on Friday as French data recorded a contraction in activity in both services and manufacturing. The German services-sector data also dipped into contraction at 48.9 from 50.6 previously, but the manufacturing index strengthened to 58.0 for October from 56.4 previously which was above expectations and the strongest reading for over two years. The Euro-zone manufacturing index edged higher to 54.4 from 53.7 while the services index retreated further into contraction at 46.2 from 48.0 previously.
With on-going concerns over trends in the service sector, the data provided an overall element of relief for the single currency and the Euro moved significantly higher to above 1.1850 against the Dollar. The US currency also lost ground amid a lack of confidence in longer-term fundamentals.
As of writing, the Euro currently trades around the 1.1845 mark against its US counterpart.
Data to watch
15:00 – USD – New Home Sales