UK Manufacturing Activity Expands at a Slower Pace

Today’s subdued manufacturing data from the UK might further weigh on the prospects of an interest rate hike by the BoE in the coming months, resulting in the Pound to trade lower against the majors this morning. Although manufacturing activity continues to remain in a strong expansion phase, markets have now shifted their focus towards next week’s construction and services PMI to ascertain the pace of recovery going forward. Across the Atlantic, today’s non-farm payrolls report might show another month of strong job additions in the world’s largest economy. However, recovery in the Euro bloc continues to remain fragile as evident by today’s manufacturing PMI numbers released across Europe.

Pound Sterling – UK Markets

The Pound dropped against the Euro yesterday following dismal consumer confidence and house prices data for July, thereby denting prospects for a steady recovery in the economy going forward. Furthermore, data just out indicated that the UK manufacturing activity dropped more than expected for July, thereby confirming the previous notion and shifting market attention towards next week’s construction and the all-important services PMI data to gauge the pace of recovery in British economy. The Pound dropped against its major counterparts this morning following the disappointing PMI report. Going forward today, investors in the Pound-US Dollar pair will keep a close watch on today’s official US labour market data for further cues to risk appetite. Apart from PMI reports, markets will keep a tab on next week’s BoE monetary policy meeting to ascertain if there is any change in policymakers view over the prospects of recovery in the nation. Additionally, a slew of important macro data at home, especially industrial and manufacturing reports along with the NIESR GDP estimate, scheduled next week will keep market participants interested.

US Dollar – US Markets

With an action packed week nearing its end, markets will keep a close watch on crucial US non-farm payrolls report scheduled for release later today. The greenback has posted substantial gains against its peers this week and prospects of further upside will depend on the upcoming labour market figures. The official labour market data is likely to show that the US economy added more than 200K jobs for the sixth consecutive month in July. Last month, the Fed Chief indicated that rate hikes in the nation are dependent upon the prevalent labour market conditions and today’s data is likely to further strengthen hopes for a sooner than expected hike in interest rates. In today’s trading session, the US Dollar is trading in a tight range, albeit on a firmer footing, against most of its major counterparts. In the wake of mostly upbeat regional manufacturing reports lately, today’s ISM manufacturing PMI data is expected to chart a similar trend, thereby pointing that recovery in the world’s largest economy continues to remain on track.

Euro – European Markets

The Euro is trading in a tight range against the US Dollar this morning. Data released earlier today showed that Euro zone and German manufacturing PMIs were a tad lower than the preliminary figures. Going forward, markets will keep a close watch on today’s US labour market report for further direction to risk appetite. Yesterday’s inflation data from the Euro zone revealed that consumer prices in the region grew at a slower than expected pace for July. The inflation figures from the European economies seem to suggest that the ECB’s loose policy stance is having a muted impact in countering the threat of deflation in the region. The subdued inflation data is likely to spark a debate among policymakers in the ECB policy meeting due next week. The Euro advanced against the Pound yesterday following upbeat German retail sales and labour market report, thus suggesting that the German economy continues to recover modestly. Additionally, the unemployment rate in the Euro area dropped unexpectedly to 11.5% for June. However, further gains in the Euro-Sterling pair were limited after yesterday’s weak Euro zone inflation figures.

Other Currencies – Highlights

The Japanese Yen continued to trade in a tight range against the greenback ahead of the much awaited official US jobs report due later today. Domestic data released earlier today indicated that the final manufacturing PMI numbers were below the preliminary estimate, suggesting a slowdown in the nation’s manufacturing activity on the back of dampened consumer spending. However, the Bank of Japan Governor, Haruhiko Kuroda, indicated that an improving domestic investment scenario amid stronger demand for corporate loans along with higher amount of summer bonus payments would boost the nation’s household spending. Additionally, he reiterated that the central bank will not hesitate to use further policy tools to meet its inflation target, if required. With no other domestic triggers scheduled today, markets keenly await the Bank of Japan’s monetary policy meeting and trade data due next week for further direction to the Japanese Yen against the majors.