Sterling Sentiment Weakens As Market Awaits NFP
The final UK PMI services-sector index was revised down to 58.8 from the flash reading of 60.1 which increased concerns that the UK recovery could slow over the next few months.
With reservations over its fundamental outlook, Sterling was unable to make any headway and continues to be underpinned by strong global risk appetite, but the more defensive tone on Thursday was significant in eroding support.
The UK government have openly stated that EU Chief Negotiator Michel Barnier had mis-represented the UK’s position on trade talks, as further tensions over the fisheries agreement continues along with the UK’s latest proposal being immediately rejected by the EU.
The Pound initially dipped below 1.3250 on Dollar strength and continues to struggle to regain ground while the Euro pushed Sterling down to just below the 1.12 level where it continues there or thereabouts as we begin the last trading session of the week.
US initial jobless claims declined to 881,000 in the latest week from 1.01mn the previous week and below consensus forecasts of 950,000. Continuing claims also declined to 13.25mn from 14.49mn previously. There was however, a sharp increase in the number of claims under the pandemic unemployment assistance programme of over 2.5mn and all metrics were affected by revised seasonal adjustment methodology which created uncertainty.
The July trade deficit widened to US$63.6bn from US$53.5bn the previous month as imports increased sharply and the largest deficit since July 2008. The final PMI services-sector index was revised up slightly to 55.0 from the flash reading of 54.8.
The August ISM non-manufacturing index also declined to 56.9 from 58.1 with significant slowdowns in the rate of growth for business activity and new orders. Employment contracted for the 6th successive month, although the rate of decline slowed.
Although the Dollar posted significant gains against commodity currencies, this was primarily a function of weaker risk appetite. Volatility has eased this morning ahead of the US employment report with the market expecting of an increase in payrolls of around 1.4m.
The final German PMI services-sector index was revised higher to 52.5 from the flash reading of 50.8. There was a downgrade for France and the Italian index was notably weaker than expected with a slide into contraction territory. The overall Euro-zone index was revised slightly higher to 50.5 from 50.1, but below the 54.9 for July.
There was further speculation of unease at the ECB over recent Euro gains with a growing focus on next week’s council meeting on the currencies overvaluation being a topic of discussion. The Euro remained weak ahead of the US open yesterday but managed to find support just below 1.1800 against the Dollar.
As of writing, the Euro currently trades around the 1.1840 mark against its US counterpart.
Data to watch
10:30 – GBP – MPC Member Saunders Speaks
13:30 – USD – Average Hourly Earnings
13:30 – USD – Non-Farm Employment Change
13:30 – USD – Unemployment Rate