UK Construction PMI Continues to Expand

In line with yesterday’s encouraging UK manufacturing PMI print, the just out UK construction activity report also showed an improvement for June, thereby raising market expectations for a similar trend in tomorrow’s services PMI data. Today’s Nationwide report also showed that house prices in the UK rose more than expected for June. These figures will prove crucial in deciding the central bank’s future course of action, especially after Mark Carney, the BoE Governor, earlier emphasised the importance of economic releases in deciding future policy moves. Across the Atlantic, today’s ADP employment numbers will serve as a precursor for tomorrow’s all important non-farm payrolls data to gauge the pace of recovery in the nation’s labour market.

Pound Sterling – UK Markets

The UK manufacturing PMI surprisingly rose for June, thereby leading the Pound to trade above the 1.71 mark against the greenback yesterday. Manufacturing activity continued to expand at its fastest pace in seven months, boosted by a rise in new orders and jobs growth. Sterling is trading on a firmer footing against the majors this morning after data just released indicated that construction sector activity in the UK improved for June, in line with yesterday’s encouraging manufacturing sector report. This has shifted market focus onto tomorrow’s widely watched services PMI report to gauge the overall performance of the UK economy during the second quarter. In the wake of comments from the BoE Governor last month wherein he stressed on the importance of economic releases which will drive the central bank’s decision over the timing of probable interest rates hikes, these PMI numbers would prove crucial in deciding the future course of action. Separately, data released by Nationwide earlier today indicated that house prices continued to show a double digit rise for June.

US Dollar – US Markets

While this week’s non-farm payrolls report remains a key macro event for the US Dollar, it remains to be seen whether today’s ADP employment numbers prompt market expectations to be revised ahead of tomorrow’s official labour market report. Although the second quarter US economic data looks broadly encouraging following the weakness seen earlier this year, it is difficult to gauge whether the economy is out of the woods yet. Additionally, comments from the US Fed Chief, Janet Yellen, due later today might attract some market attention, although it is unlikely that she would offer any hints about the monetary policy outlook. Meanwhile, the US Dollar is trading in a tight range against its major counterparts this morning. The US Dollar was range bound against the Euro while it weakened against the Pound in yesterday’s trading session. Data indicated that US ISM manufacturing activity eased unexpectedly for June, although new orders grew at its fastest pace in six months. The report was in sync with the earlier regional manufacturing data in the US, suggesting that more needs to be done to put the economy on a sustainable growth path.

Euro – European Markets

Soft manufacturing activity data from most of the European nations along with weak US ISM manufacturing PMI reading led the common currency to trade in a tight range against the greenback in yesterday’s trading session. The Euro zone final manufacturing report showed that activity in the sector slowed more than previously expected for June, thus suggesting that recovery in the region remains tepid. With the number of unemployed people in Germany rising unexpectedly for June and the Euro zone unemployment rate remaining at elevated levels for May, the ECB’s decision last month to unleash unconventional policy measures seems to be a step in the right direction. Today’s final Euro zone GDP numbers for the first quarter is likely to provide direction to the single currency which is trading in a tight range against the greenback this morning. With no other major domestic releases due today, investors will keep a close watch on tomorrow’s ECB monetary policy meeting, although the central bank is unlikely to alter its current policy stance as it might adopt a “wait and watch” approach to gauge the impact of its earlier unprecedented policy move.

Other Currencies – Highlights

The RBA, in its monetary policy meeting held yesterday, kept its benchmark interest rate unchanged at 2.50%, leading the Australian Dollar to move higher against the US Dollar. The RBA Governor, Glenn Stevens, in his post meeting conference indicated that the current monetary policy was appropriate enough to foster sustainable growth in demand and that the recent inflation outcome is consistent with the central bank’s goal. Additionally, upbeat Chinese manufacturing PMI report and weak US ISM manufacturing activity data supported gains in the Aussie Dollar against the majors yesterday. Data released earlier today indicated that trade deficit in Australia widened significantly for May weighed down by weak exports, thereby leading the Australian Dollar to trade on a weaker footing against the US Dollar this morning. Going forward today, markets will keep a tab on the RBA assistant Governor’s speech along with the US ADP employment numbers for further direction. Additionally, a slew of domestic economic data scheduled tomorrow including retail sales, services PMI and building approvals will keep investors in the Australian Dollar interested.