The Pound hit an eight-year low against the Euro at 1.0829, which was a fall of 0.57% on the day.
Yesterday, Sterling took a tremendous nosedive as the currency was infected by a bout of Brexit bearishness. On the flip side, there hasn’t really been much to force Sterling lower against the Dollar and the Euro. The former has admittedly seen something of a comeback this week following a fortnight of macro-economic losses; the latter, meanwhile, received a bit of a boost from a better-than-expected Eurozone manufacturing PMI (even if the services reading was worse than forecast) yesterday. With little else going on in the UK, it seems investors have been left to speculate about the state of the Brexit negotiations, which is rarely a good thing for the health of the Pound.
A survey of British employers painted a gloomy picture of the UK economy. The Recruitment & Employment Confederation jobs outlook survey showed that a majority of employers expected the economy to worsen rather than to improve, and this took its toll on the Pound.
The UK docket has the second readout of Q2 GDP, which will be published at 9.30am. The second estimate of the United Kingdom GDP is expected to remain steady 0.3% in the second quarter, the same as that seen in the preliminary reading. The annualized reading is also expected to remain unchanged at 1.7% in Q2.
The Eurozone flash manufacturing PMI index was stronger than expected with an increase to 57.4 from 56.6 the previous month and close to six-year highs. Although there was a weaker-than-expected reading for the services sector, which retreated to a seven-month low, confidence in the Eurozone outlook remained robust.
European Central Bank (ECB) President Mario Draghi used his speech in Lindau, Germany to defend unconventional monetary policy, stating it has been a success on both sides of the Atlantic. “Policy actions undertaken in the last 10 years in monetary policy and in regulation and supervision have made the world more resilient. But we should continue preparing for new challenges,” he said. There was some fresh Euro support given that there had been some speculation that he would take the opportunity to talk down the Euro or make dovish comments.
Bundesbank head Weidmann called for an orderly and quick exit from asset purchases which helped underpin the Euro and Hansson stated that the Euro’s value was not an issue at this point. “In terms of the Euro positioning, we are at extremely stretched levels both against the Dollar and the Pound,” said Richard Falkenhall, senior FX strategist at SEB.
There was a slightly weaker-than-expected reading for the US PMI manufacturing index yesterday at 52.5 from 53.3. This was negated, however, by a much firmer than expected services sector reading at 56.9 from 54.7, the strongest reading for 27 months. Further, evidence of rising inflation pressures showed within the data as it was the sharpest increase in output prices for three years. In contrast, there was a sharp decline in the latest new home sales data and the Dollar was unable to gain any support. The downtick for Cable continued to two-month lows of 1.2778, whilst the Dollar against the Euro closed at 1.1794.
The Jackson Hole Symposium starts today but financial markets will have to wait until tomorrow to hear speeches from both ECB President Mario Draghi and Fed President Janet Yellen. There may be some interesting interviews on the outskirts though to look out for.
On the data front, US initial jobless claims and US existing home sales are due. Initial claims have been creeping lower again in recent weeks and fell to 232k last week, very close to the cycle low in February. This week’s claims are expected in at 239k, an increase in 7k from last week but points to a robust labour market with a very low rate of layoffs.
Data to watch:
Jackson Hole Symposium
9.30am UK Q2 GDP, Year on Year & Month on Month.
1.30pm US Initial Jobless Claims & Continuing Jobless Claims