Sterling Upside Capped By Lockdown
UK manufacturing PMI edged up to 57.5 from the flash reading of 57.3 due to stockpiling ahead of the UK leaving the EU and also as delivery times increased. Mortgage approvals hit nearly 105,000 in November, up from 98,300 previously and the highest reading for over 13 years. There was, however, a further repayment of consumer credit with the annual decline of over 6%, the highest rate since the data series started in 1994.
Sterling peaked just above 1.3700 on the Dollar, but gradually drifted lower against the Euro.
As the US market opened the Pound failed to make headway and losses accelerated, especially after tighter coronavirus restrictions were announced for Scotland. It was also announced that there would be further lockdown measures in England which further undermined confidence and a slide in risk conditions also sapped confidence. Sterling dipped to near 1.3550 against the Dollar while the Euro pushed to highs near 1.1050 before correcting slightly. This morning, global risk conditions have recovered and Sterling has moved closer to 1.3600 on the Dollar and the Euro around 1.1080.
The dollar remained firmly on the defensive amid strong risk appetite and expectations that the very loose Federal Reserve (Fed) policy would maintain negative real interest rates and lead to further inflows into other assets. The US currency dipped to fresh 32-month lows with the Euro also posting 32-month highs just above the 1.2300 level as overall risk appetite also held firm.
The US PMI manufacturing index was revised higher to 57.1 for the final reading from the flash reading of 56.5 and the highest reading for over six years, although there was a slowdown in the rate of orders growth. Markets were less confident over the outlook for the services sector given coronavirus restrictions.
Risk appetite dipped after the Wall Street open with increased coronavirus restrictions in the U.K. helping to increase fears over wider coronavirus developments.
The US dollar was able to secure a tentative recovery with a sharp retreat in commodity currencies helping to push the euro to just below 1.2250.
The final reading for the Euro-zone PMI manufacturing index was revised to 55.2 from the flash reading of 55.5 previously. The Spanish and Italian PMI readings were also weaker than expected, reinforcing reservations over the near-term outlook and the services data will be notably weaker.
The Euro also failed to keep gains above 1.23 for the third consecutive day amid a broad recovery from lows in the Dollar as risk appetite took a turn for the worse. Market participants appear to be taking some risk off the table ahead of key events later in the week as well as undergoing some volatility typical of this time of the year.
As of writing, the Euro currently trades around the 1.2270 mark against its US counterpart.
Data to watch
16:00 – USD – ISM Manufacturing PMI