Sterling falters as key PMI misses forecast, U.S. dollar strengthens, NZD falls, as dairy auction results miss forecasts
It’s fascinating to note how well sterling is actually holding up versus its main peers over recent weeks, despite the U.K. government’s Brexit plan beginning to fall apart at the seams. Once again, during the Conservatives annual conference in Manchester, the minister in charge of the negotiations issued the now infamous; “no deal is better than a bad deal” phrase, just as MEPs in Strasbourg were voting that the U.K. had made such little progress in the talks that no further negotiations on a trade deal could take place, until certain issues were resolved and the UK’s requested “transition period” was now quite simply a “no go”.
There was a time, shortly after the 2016 referendum result, when such a vote would have hit sterling hard, seeing it fall by perhaps 1% in a day, versus its peers, however, lately the effect is rather more benign. Perhaps it’s a weak dollar as opposed to any sterling strength, that’s seen the pound regain circa 7% versus the dollar in 2017 from its depths of 1.20 in January, GBP/USD has fallen by circa 2% over the past week. It must also be recalled that in late August the euro briefly reached 93 versus the pound, and parity versus its main trading partners’ currency, is still spoken of by many analysts as a realistic level, once Brexit finally takes place in March 2019.
Brexit economic issues were high on the economic calendar on Tuesday as the UK’s construction PMI from Markit shocked investors by coming in at 48.1, below the forecast of 51.1, a figure below 50 indicates contraction in an industry. The indication is that developers are reluctant to commit as Brexit approaches. This poor reading follows the manufacturing PMI missing the forecast on Monday, investor focus will now turn to Wednesday’s service and composite PMIs for the U.K.
There was little in the way of calendar news from the USA on Tuesday, however, leading equity indices maintained their record high altitude, despite indications that Trump’s wholesale tax reductions look doomed to fail, as lawmakers appear concerned that such cuts will simply add to the record debt levels, at a time when the $20 trillion + debt ceiling has been suspended as a legal issue, for now.
As widely forecast, by the economists polled, Australia’s central bank the RBA kept the main interest rate at 1.5%, when it announced its decision early Tuesday morning. The impact on the Aussie was muted, AUD/USD fell through S1 initially, but regained its lost ground to end the day close to 0.1% up, just above the daily pivot point, at circa 0.7836. In midafternoon European time, the kiwi fell as a consequence of disappointing dairy auction prices; AUD/NZD breached up through R3 to 1.0946, up circa 1% on the day. The Kiwi fell sharply versus its other main commodity currency peer; NZD/CAD ending the day down circa 0.8% at 0.8941.
Both European indices and the euro appeared to regain favour amongst investors after the Catalonia disruption on Sunday past. EUR/USD was up circa 0.1% on the day, at 1.1748, ending the day close to the daily pivot point. EUR/GPB benefitted from sterling weakness, ending the day up circa 0.4% resting on R1 at 0.8871. EUR/NZD witnessed a sharp move upwards, as N.Z.’s dairy auction results’ disappointment, fed through to the FX market. EUR/AUD gained early in the European session after the RBA kept their interest rate unchanged, but similar to the Aussie versus the U.S. dollar, the Aussie clawed back it’s losses versus the euro in the New York session.
USD/JPY rose to its highest level in approx. three months during Tuesday’s trading sessions, ending up 0.1% on the day, to 112.87, receding from a daily high over the critical psyche handle of 113.00. GBP/USD fell by circa 0.2% to 1.3242, having at one point during the morning European session, breached the S1 level. The dollar index was little changed on Tuesday, after reaching an eleven week high during recent trading sessions.
Sterling made very little gains versus any peers on Tuesday, GBP/CHF fell by circa 0.2% on the day, after making significant gains on Monday, versus AUD and CAD the UK’s pound also fell, both GBP/CAD and GBP/AUD ended the day down circa 0.3%, with both currency pairs resting on S1 towards the end of the trading day. GBP/JPY ended the day circa 0.2% down, at 149.38.
EQUITY INDICES AND COMMODITIES SNAPSHOT
• DJIA closed up 0.37%.
• SPX closed up 0.22%.
• FTSE 100 closed up 0.39%.
• DAX closed up 0.58%.
• CAC closed up 0.32%.
• ASX 200 closed down -0.49%.
KEY ECONOMIC CALENDAR EVENTS FOR OCTOBER 4th
• GBP Markit/CIPS UK Services PMI (SEP).
• GBP Markit/CIPS UK Composite PMI (SEP).
• EUR Euro-Zone Retail Sales (YoY) (AUG).
• USD ADP Employment Change (SEP).
• USD ISM Services/Non-Manufacturing Composite (SEP).
• USD Yellen Gives Welcoming Remarks at Community Banking Event.
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