Sterling Surges As Sentiment Shifts
According to flash PMI data, the UK PMI manufacturing index strengthened to 55.2 from 53.3 the previous month. The services sector declined to 45.8 from 52.3 previously, but also above expectations as unemployment continued to decline sharply, although overall business confidence strengthened to the highest level for over five years amid optimism over vaccine developments.
BoE’s Chief Economist Andy Haldane noted his optimism over a recovery in the economy for 2021, although he did warn that there could be permanent scarring to the economy and that November data had registered a downturn. Vaccine hopes will limit the potential for further central bank policy easing.
There were continued expectations that there would be a Brexit trade deal within the next few days, although with no sign of an imminent breakthrough in talks.
The UK currency strengthened to 11-week highs just below 1.3400 against the Dollar and to 1.1277 against the Euro before correcting slightly lower. Sterling holds steady this Tuesday with gains in commodity currencies providing net support with additional relief that more businesses will be allowed to re-open once the England lockdown eases.
The US PMI manufacturing index strengthened to 56.7 for November from 53.4 the previous month and well above consensus forecasts of 53.0. The services-sector index also posted a gain to 57.7 from 56.9 and above market expectations of 55.0. The data offered important reassurance over the near-term US outlook which helped underpin the US currency, especially with reduced expectations of further near-term Federal Reserve easing.
The US currency index also rebounded strongly from a key support area which provided an important push to the dollar against major currencies
According to flash data for November, the German manufacturing PMI index declined slightly to 57.9 from 58.2 previously and above consensus forecasts of 56.5. The services sector data declined to 46.2 from 49.5 and close to market expectations. The Euro-zone manufacturing index declined slightly to 53.6 from 54.8 previously while the services-sector PMI declined to 41.3 from 46.9 and the lowest reading for 6 months. The data overall provided limited relief given that the services data was not as bad as expected. The Euro strengthened to highs just above the 1.1900 but again failed to break above which triggered a correction lower.
ECB council member Rehn stated that the bank must keep current financing conditions for as long as needed with the bond purchases and cheap loans the key instruments. The comments continued to dampen expectations that the central bank would move to cut interest rates.
As of writing, the Euro currently trades just under the 1.1850 mark against its US counterpart.
Data to watch
16:00 – USD – CB Consumer Confidence