GBP/USD Declines As Geopolitical Tensions Dampen Market Mood

GBP/USD (Cable) is hovering near Wednesday’s low at 1.2440 in the Asian session. Cable is expected to extend its downside journey as geopolitical tensions between the US and China over Taiwan have dampened the overall market mood. China’s retaliation over arms support to Taiwan by the US might result in some restrictions on exports from China to the US.

S&P 500 futures have generated decent losses in the Asian session, continuing its two-day losing streak amid deepening fears of a recession in the US economy. After five straight months of contraction in the US manufacturing sector, the weaker-than-anticipated US Services PMI has strengthened signs of a slowdown. Fortunately, the US Services PMI has not fallen into a contraction trajectory yet.

The release of the US Nonfarm Payrolls (NFP) data will provide clarity over the labour market condition. Scrutiny of US Automatic Data Processing (ADP) Employment data is indicating a slowdown in the labour market ahead.

GBP – Bank of England (BoE) policymakers’ anticipation that UK inflation will start declining quickly looks vague. There are no signs that UK inflation has started softening, however, a fresh jump in oil prices is expected to put more burden on households.

 

EUR / USD 

The final Euro-Zone services PMI index was revised down to 55.0 from the reading of 55.6, but there was still a solid expansion on the month.

The Euro was, however, unable to make further headway after Wednesday’s European open with a slightly less confident risk tone curbing potential support.

ADP data recorded an increase in private US payrolls of 145,000 for March and below expectations of around 200,000, although the February increase was revised higher to 261,000 from the original reading of 245,000. There were notable declines in payrolls in manufacturing with sharp reductions in financial activities and business services. There was a slowdown in wages growth with the annual increase for job stayers slowing to 6.9% from 7.2%.

The US ISM non-manufacturing index declined sharply to 51.2 for March from 55.1 the previous month and below expectations of 54.4. There was a slowdown in the rate of business activity growth and a much sharper slowdown in new orders growth while order backlogs declined. There was only a small employment increase for the month while supply-side stresses continued to ease.

There was a slowdown in prices growth with the lowest reading since July 2020 which suggested an underlying easing of inflation pressures.

The Euro posted gains in an immediate reaction to the data, but there was a quick retreat as the USD proved resilient and bounced from fresh 2-month lows.

The Euro drifted lower to near 1.0900 before stabilising and traded close to 1.0900 on opening today amid reservations surrounding the global economy.

Attention now turns to tomorrow’s US non-farm payrolls, where it’s expected to show that the US economy added around 220k jobs in March, this could support the FED’s plans to keep interest rates higher for longer, despite concerns over financial stability in the wake of the Silicon Valley Fallout. This will be very important for underlying confidence in both the economy and the dollar.

 

Next Central Bank Announcements:

FED = 3rd May

ECB = 4th May

BOE = 11th May

 

Economic data for the remainder of this week:

 

Thursday

1.30pm – Canada Unemployment rate

 

Friday

1.30pm – US non-farm payrolls

 

–Tim Nay–