Notwithstanding the slowdown in Britain’s dominant service sector for November, the UK economy is poised to end the year on a strong footing, with growth in manufacturing and housing sectors registering multiple year highs. The buoyant domestic economic environment is a shot in the arm for Chancellor George Osborne, ahead of his Autumn Statement tomorrow, outlining plans for growth, spending and taxes.
In the Euro zone, after a largely weak set of services PMI prints, the focus has now shifted to retail sales report later today. However, most investors are expected to remain glued to the string of US macro data in today’s session ahead of the crucial labour market report on Friday.
Pound Sterling – UK Markets
The latest PMI data for the UK showed that growth in the dominant services sector slowed, following a robust expansion in the previous month. The upbeat growth in the UK’s manufacturing and services activity in the recent past has further validated the latest upgrades in Britain’s growth projections. Moreover, the surprisingly upbeat UK construction PMI print, built around a sharp expansion in residential construction lifted the Pound against the US Dollar yesterday. Construction sector activity expanded at the fastest pace in over six years for November as house building activity climbed to the highest since 2003.
The Pound has moved lower against the majors, following the release of today’s services PMI data. While a raft of global economic data will determine Sterling’s movement against the majors in the session ahead, investors will have an eye on the UK Chancellor, George Osborne’s semi-annual Autumn forecast statement tomorrow. Also, the BoE policy meeting will gain considerable market attention for cues on the central bank’s policy outlook.
US Dollar – US Markets
A lack of decisive domestic macro-economic data weakened the US Dollar against the majors yesterday, although losses were capped amid rising expectations that the Fed is moving closer to tapering its massive bond buying programme. In this context, the San Francisco Fed President, John Williams, opined that in order to counter the persistent uncertainty over the timing of stimulus withdrawal, the central bank must take a more aggressive stance to communicate its rate hike guidance to investors. The greenback also remained under pressure after largely upbeat European economic data underpinned demand for the Euro and Sterling.
Meanwhile, the US Dollar is trading in a tight range against the majors this morning ahead of a heavy domestic economic calendar today. The ADP employment numbers will act as a precursor to Friday’s non-farm payrolls report and will determine investor sentiment in the sessions ahead. Additionally, the ISM non-manufacturing PMI and the delayed new home sales reports, along with the Beige Book survey will be closely scrutinised by investors for further direction on the US economic recovery.
Euro – European Markets
After nudging higher against the majors yesterday, the Euro has further consolidated its gains in todays session, despite the release of largely weak services PMI numbers across Europe, except Germany and the Euro zone. Recent economic data continues to highlight the fragile nature of the currency bloc’s economic recovery. In this context, market participants will look forward to the Euro zone retail sales and the revised third quarter GDP numbers today for cues on the strength of economic recovery in the region.
Meanwhile, the single currency remained supported against the majors yesterday following the release of unexpectedly strong Spanish labour market data. The number of registered job seekers in the Euro zone’s fourth largest economy fell for November. The Euro zone producer price inflation print suggesting deflationary pressures had minimal impact on the Euro. However, rising speculation of the Fed tapering its QE programme sooner limited the common currency’s gains against the greenback. Against the backdrop of the mixed economic data lately, tomorrow’s ECB policy meeting will attract significant market attention to gauge the central bank’s future policy stance.
Other Currencies – Highlights
The Swiss Franc has failed to gain traction against the US Dollar this morning, despite data released earlier today showing an expansion in the nation’s annual industrial output for November. Additionally, data released earlier this week showed that Switzerland’s manufacturing sector activity grew at the fastest pace in four-months for November, adding to signs of a pickup in the nation’s economic recovery. However, speculation that the Fed is closer to scaling back its asset purchases sooner than expected has kept the Franc under pressure against the greenback.
With little on the domestic macro front, important news flows emanating from both sides of the Atlantic will drive the movement in the Franc against its peers in the session ahead. Market participants will also keep a tab on the domestic consumer price inflation report on Friday for further direction to risk appetite.