UK Construction PMI Jumps

In sharp contrast to yesterday’s disappointing UK manufacturing report, the unexpected construction PMI numbers have provided some relief to Sterling investors. Against this backdrop, the dominant services PMI report due tomorrow has gained considerable importance, especially since it will be released just a day ahead of the BoE monetary policy meeting. Across the Atlantic, the re-emergence of the debt ceiling issue is expected to grab headlines in the coming days, with politicians likely to engage in a game of brinkmanship. In the Euro zone, despite the improvement in sentiment and manufacturing activity lately, clouds loom large over the ECB monetary policy meeting this week.

Pound Sterling – UK Markets

Yesterday’s downbeat British manufacturing PMI data weakened the Pound against the majors and dragged the currency below the 1.63 level against the US Dollar. Although manufacturing activity in the UK eased more than analysts’ expectations for January, the surge in new orders from home and abroad as well as improved employment prospects bode well for the nation’s economic growth in the year ahead. However, the slowdown in activity dampened Sterling investors and the dismal US economic data released later in the day also failed to lift market sentiment towards the Pound yesterday. Meanwhile, Sterling has reversed its early morning losses and moved higher against the majors in today’s trading session after data just released showed that construction activity in the UK expanded at a faster than expected pace for January. In the wake of the disappointing PMI figures, tomorrow’s services PMI report will be closely scrutinised by market participants and any downside surprises on this front will further weigh on the Pound against its peers.

US Dollar – US Markets

The US Dollar traded broadly lower against the common currency yesterday following the release of domestic ISM manufacturing PMI report which showed that manufacturing activity in the world’s largest economy fell to its lowest level since May 2013. The slowdown in activity was largely due to the steep decline in new orders for January which fell by the most in 33 years. Additionally, comments from the US Treasury Secretary, Jack Lew, who called for an immediate extension to the government’s borrowing limit, added to the greenback’s losses against the Euro. The Congress deal, reached last year to avoid a potential default, is set to expire at the end of the current month and a failure to reach a swift resolution might result in an October like crisis situation. The greenback is trading on a stronger footing against the Euro this morning largely tracking weak market sentiment prevalent in markets. Meanwhile, following yesterday’s weak manufacturing print, today’s domestic factory orders data will be eyed by investors for further insights into the health of the sector. Additionally, speeches by Fed policymakers will also attract market attention today along with the US budget and economic outlook from the Congressional Budget Office.

Euro – European Markets

The single currency strengthened against the majors yesterday as upbeat domestic manufacturing PMI numbers supported the Euro. The Euro zone manufacturing PMI expanded at the fastest pace since May 2011, driven by a pick-up in activity across the major European economies, including Germany and France, although Italy reported a marginal slowdown. However, last week’s unexpectedly weak Euro zone consumer price inflation numbers continued to limit the upside in the common currency as investors remained on the sidelines ahead of the ECB monetary policy meeting scheduled later this week. Market speculation is rife that the central bank might further loosen its policy stance to prop up inflation. The common currency has weakened against the US Dollar in today’s trading session after data released earlier today showed that the number of unemployed people in Spain increased more than expected for January. In the aftermath of the latest weak domestic inflation print, investors in the Euro will closely scrutinise today’s Euro zone producer prices data for further cues about any underlying price pressures in the currency bloc.

Other Currencies – Highlights

The Australian Dollar has climbed against its major counterparts this morning after the Reserve Bank of Australia maintained status quo on interest rates in its monetary policy meeting held earlier today. The RBA also dropped its easing bias and statement about the Australian Dollar being “uncomfortable high”, thereby hinting that interest rates might remain at current levels for an extended period of time. The unexpectedly less dovish tone from the RBA has helped the Aussie Dollar to recoup some its recent losses against the greenback. In the absence of major domestic economic data, investors in the Australian Dollar will keep a tab on news flows emanating from the US and the Euro zone later today for further direction. Furthermore, domestic retail sales, consumer confidence and trade data scheduled for release later this week will prove crucial for the Australian Dollar against the majors in the near term.