U.K. December Manufacturing PMI Falls Short of Expectations

The just out mixed European manufacturing PMIs have done little to cheer market participants, with manufacturing activity in the Euro zone remaining in line with earlier estimates. While the UK manufacturing PMI print declined for December, the sector remains firmly in the growth region. Meanwhile, investors will closely scrutinise David Cameron’s ambitious five-part plan to attain sustained economic growth during the year ahead. In the US, the economy has gained momentum heading into the New Year, with consumer sentiment, housing market, among others showing signs of recovery after the disappointing government shutdown in October. A string of crucial economic data in the days ahead will give further insights into the nation’s growth trajectory in the year ahead.

Pound Sterling – UK Markets

Although the just out manufacturing PMI report for December has shown a decline in the manufacturing activity in the UK, the sector continues to remain comfortably in expansion territory, signifying the overall buoyant health of the nation’s manufacturing sector. Subsequently, the Pound has weakened from its earlier highs against the US Dollar this morning. Earlier today, Sterling gained further traction from its Tuesday’s highs and momentarily breached the 1.66 mark against the greenback. Going forward today, important US macro releases will influence investors’ sentiment towards the Pound-US Dollar. Meanwhile, while stating that the nation’s economic recovery is fragile, David Cameron has laid out a five-part plan to drive the economy in 2014. As part of the plan the government will focus on cutting the deficit and taxes, creating new jobs by backing small businesses, capping welfare benefits, curbing immigration and making education a priority. It remains to be seen how these measures are implemented and will consequently pan out to benefit the UK economy.

US Dollar – US Markets

The US Dollar moved steadily higher against the common currency on Tuesday and strengthened further after the release of upbeat domestic consumer confidence and housing market data. Sentiment among US consumers rebounded sharply for December after deteriorating for the past two months in the aftermath of the October government shutdown. The improving domestic labour market of late has brightened the prospects of consumer spending heading into 2014. Against this backdrop, today’s initial jobless claims numbers will be closely watched by investors for further direction. The greenback was further supported after the S&P/Case-Shiller housing market report showed that home prices in the US climbed at the fastest pace in over seven years for October. However, the weaker than expected Chicago manufacturing report capped the US Dollar’s gains on Tuesday. Meanwhile, the greenback is trading on a stronger footing against most of its peers in today’s session. Apart from the labour market print, investors will keep a tab on the domestic manufacturing PMI and construction spending reports today for further direction to risk appetite.

Euro – European Markets

The single currency has failed to gain traction against the US Dollar in today’s trading session, sliding further from its Tuesday’s lows. While the revised German manufacturing PMI print for December released earlier in the day surprised markets on the upside, the Euro zone manufacturing data fell short of reigniting confidence in the Euro with numbers coming in line with the earlier estimates. Risk off sentiment following weaker than expected Chinese manufacturing PMI print for December has added to the common currency’s woes. Meanwhile, in wake of the recent optimism surrounding the currency bloc’s economic recovery and the ECB President, Mario Draghi’s comments that the region is unlikely to face deflation in the near future, tomorrow’s Euro zone consumer price inflation report will be keenly eyed by investors for further direction about the same. Meanwhile, the Euro weakened against the US Dollar on Friday, primarily on the back of upbeat US economic data. In the absence of major domestic economic indicators, the Euro-US Dollar pair will take direction from a slew of macro releases from across the Atlantic later today.

Other Currencies – Highlights

The New Zealand Dollar has weakened against the majors this morning after data released earlier in the day showed that manufacturing activity in China remained perilously close to the contraction zone. Earlier this week, the official manufacturing PMI report in China showed a bigger than expected fall in manufacturing activity in the nation. Weakness in the Chinese manufacturing sector will have a direct impact on the New Zealand economy since China is a key trade partner of the latter. The dismal Chinese performance could weigh on the minds of the Reserve Bank of New Zealand policymakers as the central bank prepares to tighten its monetary policy in the coming months. With little on the domestic economic front, investors will closely follow important economic data emanating from both sides of the Atlantic in the week ahead for further direction to risk appetite. Moving forward, next week’s domestic trade data along with the barrage of Chinese economic reports will determine the Kiwi Dollar’s movement against the majors.