Sun shines on the Euro whilst clouds gather for Pound and Dollar
Strong services PMI data from the UK on Friday was not enough to shake the uncertainty surrounding the upcoming EU referendum. An improvement to 53.5 for May, along with weak data from the States, meant that Sterling strengthened in the short term against the Dollar, but failed to maintain the higher levels. Sterling then went on to fall significantly against the Euro due to activities elsewhere.
This week will see the news dominated by opinion polls for the upcoming EU referendum. Over the weekend, the Observer/Opinium poll showed a three point lead for the leave campaign, putting Sterling on the defensive in the Asian market. This has been further supported by the two latest polls from YouGov and TNS released this morning. Both showed an increasing proportion of those polled favouring ‘leave’, just two weeks before the vote. With no key economic data due for the UK until Wednesday, EU referendum talk will take centre stage.
Friday’s US employment data underwhelmed, only showing employment gains of 38,000 for May against the market expectation of 164,000. The figure was the lowest gain for over five years. The ISM non-manufacturing data was also significantly weaker than expected with a decline to 52.9 for May from 55.7 previously, the lowest reading for two years.
The recent hawkish tone from the Federal Reserve had been built on expectations of strong economic data releases for labour market and inflation. As a result, the weak data triggered a strong Dollar sell off as the probability of an increase in interest rates by July was cut in half.
GBPUSD reached a daily high of 1.4582, with the Dollar initially losing over 1% against the Pound as the markets reacted to the US employment data. However, Sterling failed to capitalise and the Brexit fears helped to erode all Pound gains, with the pair opening this morning at 1.4495. The Dollar weakness was most evident against the Euro, with the common currency gaining 1.78%. EURUSD opens this morning at 1.1348.
The Euro strengthened 1.4% against the Pound by close of business on Friday. Very poor Nonfarm data from the US caused investors to flock to the “safe haven” of the Euro. On top of this, better than expected data from the Eurozone markit services and Composite PMI data for May saw the single currency make gains against Sterling and begin the week at around the 1.2677 levels.
Data to watch: 10.30am Euro Targeted Long Term Refinancing Operations. 3pm US May Labour Market Conditions. 5.30pm Fed’s Yellen Speech.