UK Construction PMI Continues to Expand

In contrast with last week’s dismal manufacturing activity report, data just released indicated that construction activity in the UK expanded at a faster than anticipated pace for July, shifting market attention to tomorrow’s crucial services PMI for further direction. Additionally, this week’s BoE policy meeting will keep market participants interested, especially considering recent calls for raising key interest rates. With dismal US labour market data pouring cold water on the prospects of a sooner than expected hike in interest rates, markets will continue to scrutinise further economic data for more clarity over the Fed’s future course of action. In a notable development over the weekend, Israel withdrew majority of its ground troops from the Gaza strip, thus easing investors’ anxiety.

Pound Sterling – UK Markets

The Pound is range bound against its major counterparts this morning. Data just out revealed that construction activity in Britain continued to expand for July, thus shifting market attention to the all-important services PMI report scheduled for release tomorrow for further direction. However, any downside surprise in the services PMI might raise questions on whether the nation would be able to sustain its current pace of economic growth during the third quarter. Additionally, it might have an impact on the monetary policy decision going forward, especially as the BoE Governor indicated last month that the timeline for interest rate hikes will be dependent on the nature of economic data. Against this backdrop, markets will keep a tab on this week’s BoE policy meeting for further direction to risk appetite. Meanwhile, soft domestic manufacturing activity report for July dragged the Pound lower against the majors on Friday. The print missed market expectations and reached its lowest level in a year, as exports declined mainly hurt by strong domestic currency, although the activity continued to remain in the expansion phase.

US Dollar – US Markets

An action packed week ended with disappointing US labour market report which pushed the US Dollar lower against the Euro on Friday. Data indicated that the US economy added less than expected jobs for July, thereby supporting last week’s comments from the US Fed that there still remains a slack in the domestic labour market. Furthermore, the unemployment rate unexpectedly ticked higher for July while wage growth continued to remain subdued, thus denting hopes for a sooner than expected hike in interest rates. However, a more than 200k job additions for the sixth consecutive month indicates that the economy continues to recover at a modest pace. Separately, a report by the ISM indicated that manufacturing activity in the nation expanded at the fastest pace in 39 months for July, boosted by a rise in new orders. The US Dollar is trading in a tight range against the Euro this morning. Data released over the weekend indicating that official services activity in China eased for July could keep the US Dollar supported against the majors today. Additionally, markets will keep a tab on tomorrow’s ISM services PMI and this week’s trade balance figures for further direction.

Euro – European Markets

The Euro advanced against the US Dollar on Friday following weak US labour market report. However, gains were capped as dismal manufacturing reports from most of the European nations suggested that economy recovery in the Euro bloc continued to remain uneven and fragile. Data released on Friday indicated that manufacturing activity in the Euro zone and Germany slowed more than previously estimated for July. Data just out indicated that Sentix consumer confidence in the Euro zone deteriorated for August and has led the Euro to trade under pressure against its major counterparts this morning. Markets will now eye producer prices data in the Euro zone due later today, especially considering the continuing threat of deflation engulfing the region’s economy. Going forward this week, the ECB’s monetary policy meeting will attract most of market attention. In noteworthy developments over the weekend, Israel withdrew most of its ground troops from the Gaza strip, while Portuguese lender, Banco Espirito Santo SA, was rescued by the Portuguese government as part of a €4.9 billion rescue plan.

Other Currencies – Highlights

The Aussie Dollar continued to trade on a firmer footing against the greenback following the release of last week’s weak official US labour market report. However, gains in the Australian Dollar were capped by the weak TD securities report which showed that the nation’s consumer price inflation eased for July. Additionally, growth in the number of advertisements for job vacancies in Australia decelerated sharply for July, suggesting that the nation’s jobs report scheduled for release later this week could show a slowdown in job additions for July. Furthermore, data released yesterday in China showed that activity in the services sector slowed, further weighing on the Aussie Dollar against the majors. With little on the domestic macro front today, markets will keep a tab on tomorrow’s RBA policy meeting at which the central bank is widely expected to keep its benchmark interest rate unchanged at 2.5%. Also, the AIG service sector data due overnight will be eyed to ascertain if the Australian non-manufacturing activity remained in the contraction phase for the fifth consecutive month.