Sudden drop in Sterling

Sterling’s ongoing surge against the US Dollar and other major currencies has suddenly stalled this morning following a surprise drop in PMI Construction data that has come in well below expectations. Markets will be watching today to see how long-term the impact of the PMI data is and whether Sterling can regain its climbs. Tonight’s UK Nationwide consumer confidence report and what emerges from the US data releases later today may be crucial in determining whether the balance will shift at all.

Pound Sterling – UK Markets

Yesterday, Sterling had reached yet higher and hit a six month high against the US Dollar. The positive news from the manufacturing sector yesterday had helped the ongoing climb however an abrupt drop against both the Euro and US Dollar has occurred in the last few hours this morning following a surprise result from PMI Data. The PMI data which measures conditions in the construction industry was expected to come in at 58.2 for June following 58.4 from the previous month. However it has plummeted against expectations coming at 54.1. Further data releases today in the US and in the UK from Nationwide this evening may cause further movement. David Cameron and Nick Clegg have written to the Cabinet regarding the importance of of budget cutting. The letter congratulates the cabinet for the first twelve tough weeks in office and reminds the Cabinet of the priority of reducing the deficit as Government Ministers are negotiating with the Treasury over tensions regarding defence spending and welfare reform.

US Dollar – US Markets

The fragile US Dollar has continued to weaken. The US ISM reported that its manufacturing gauge fell in July adding to the stream of negative news on the US economy. This was further emphasised in a speech by the Federal Reserve Chairman who reiterated his concerns and his views to keep fiscal policy fairly loose in the foreseeable future as the US has some way to go to achieve a full recovery. Today is busy for US data releases so this may bring more Dollar movement – personal consumption data is expected to increase minimally by 0.1 percent, factory orders are expected to come in at -0.5 percent and pending home sales are expected to rise by 4 percent in June following May’s shock drop of 30 percent.

Euro – European Markets

The Euro has surged to a three month high against the US Dollar. The Manufacturing Purchasing Managers Index figures for July showed a better than expected rise. The EU and IMF are preparing for a press conference between Wednesday and Friday this week to discuss the progress made by Greece in reducing the deficit. Greece’s austerity moves are expected to pass their first test this week and therefore secure more rescue funds for Greece on the back of the nation performing better than expected in cutting the deficit beyond set targets. Citigroup Inc have added to the positive sentiment surrounding the climbing Euro by suggesting the Euro may reach 1.39 against the US Dollar for the first time this month since February. The European Producer Price Index results this morning for June have fallen short of expectations coming in at 0.3 percent rather than 0.4 percent but this minor difference has not shown itself in the strength of the Euro which has remained unscathed.

Other Currencies – Highlights

The Australian Dollar has dropped following a interest rate hold at 4.5 percent by the Reserve Bank of Australia after reports on building approvals and retails sales showed declines. Scandinavian currencies are benefiting from investors transferring funds away from the US Dollar and into other assets. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.