Sterling flat as stamp-duty holiday to be offered
UK construction PMI’s printed significantly higher than forecasted with 55.3 for June, a peak since July 2018 and worlds away from 28.9 the previous month. Confidence and new business edged up but caution remained while employment declined further. Also, there were further issues with supply chains which contributed to upward pressure on costs. The data failed to stimulate the Pound which held in tight ranges. Even the firm tone in global risk appetite failed to muster headway amid reservations over the underlying economic outlook, especially given tensions with China.
The Pound failed to hold above 1.2500 on the Dollar settling just below and the Euro held net gains to trade around 1.1037. The future market data revealed little change in bets against the Pound as markets lacked conviction. Latest reports indicated that Chancellor Rishis Sunak would announce a stamp-duty holiday, effective immediately in order to avoid damaging the housing market. Sterling again failed to hold above 1.2500 against the Dollar this morning and the Euro opens near 1.1050.
The US PMI services-sector index was revised to 47.9 for the final reading from 37.5 the flash reading of 46.7 and 37.5 the previous month. The ISM non-manufacturing index strengthened sharply to 57.1 for June from 45.4 previously and well above market expectations of 50.2. This was the strongest reading since March and the largest monthly gain on record. The business activity index strengthened sharply to 66.0 from 41.0 and the new orders component also rebounded strongly on the month. There was only a small increase in order backlogs while employment continued to decline on the month. The overall components were slightly less encouraging than the headline figure.
The dollar regained some ground following the data, although the Euro was able to hold above the 1.1300 level. Underlying trade tensions between the US and EU persisted with the EU reiterating that it would retaliate if the US pushes ahead with imposing tariffs on EU exports..
The Euro-zone Sentix investor confidence index recovered to -18.2 for July from -24.8 previously, although this was below consensus forecasts of -10.9 with some evidence of scepticism over the pace of recovery. The common currency maintained a firm tone ahead of the US open and hit 3-week highs of 1.1345 against the Dollar.
CFTC data recorded a net decline in long Euro positions from 2-year highs, slightly increasing the potential for fresh buying of confidence improves. As of writing, the Euro trades just above the 1.2900 against its US counterpart.