UK Manufacturing PMI Improves

The UK economy continues to grow from strength-to-strength, as highlighted by this week’s first quarter GDP report and the upbeat manufacturing PMI data for April. Today’s manufacturing print has raised hopes of the positive environment in the economy extending into the second quarter of 2014. Market focus has now shifted to tomorrow’s construction and next week’s services PMI for further direction. Across the Atlantic, the Fed further trimmed its bond purchases yesterday, while dampening any expectations of an early interest rate hike in future. Against this backdrop, today’s ISM manufacturing numbers will be closely watched. In the Euro zone, yesterday’s relatively positive inflation print is likely to offer the ECB more breathing space before considering any drastic policy alteration.

Pound Sterling – UK Markets

Data just released indicated that the UK manufacturing sector continued to remain in expansion phase for April, strengthening views that the domestic recovery continues to gain momentum during the second quarter and leading Sterling to move above the 1.69 mark against the US Dollar. Furthermore, better than expected Nationwide house prices and consumer credit data lent further support to the Pound against the majors in today’s trading session. However, data showed that mortgage approvals surprisingly dropped for March, thereby suggesting that low interest rates are unable to translate into higher home purchases due to rising prices. Going forward today, market participants will keep a close watch on the US ISM manufacturing print and a speech from the US Fed Chief for further direction. Additionally, Sterling investors will closely follow tomorrow’s domestic construction and next week’s services PMI reports for further direction. Meanwhile, Sterling continued its upward march against the US Dollar yesterday after data released in the US indicated that the economy grew at a far slower than expected pace during the first quarter.

US Dollar – US Markets

Hopes of a revival in US economic growth received a severe jolt after data showed that economic growth in the US almost went in to reverse during the first quarter, weighed down by extreme and disruptive cold weather along with declining exports. As a result, the greenback suffered against its major peers yesterday. However, the FOMC statement accompanying the Fed’s monetary policy decision seemed to indicate that policymakers expect a modest pick-up in US growth for the period ahead, thus helping the US Dollar to limit its losses against other major currencies during the latter half of yesterday’s trading session. Besides, on expected lines, the US Fed announced a further scale down to its economic stimulus by $10 billion. Separately, the ADP labour market report surprised markets on the upside after private sector employers added more than expected jobs for April, thereby raising prospects of a positive surprise from today’s initial jobless claims and tomorrow’s non-farm payrolls report. The greenback is trading in a tight range against the majors this morning ahead of the US Fed Chief, Janet Yellen’s speech due later today. In the wake of mostly upbeat regional manufacturing reports, today’s ISM manufacturing sector data is likely to show an improvement for April.

Euro – European Markets

The Euro advanced against its major peers yesterday, as traders breathed a sigh of relief after data indicated that Euro zone inflation accelerated for April, thereby pacifying concerns of a potential deflation in the Euro zone, especially after the latest CPI reading from Germany offered alarming signals. Against this backdrop, the ECB is widely seen pursuing its “wait and watch” approach in the next week’s monetary policy meeting. Additionally, the Spanish economy, grew at the fastest pace in six years, further reflecting the considerable change in the region’s overall economic environment. However, labour market woes and prospects of a deflation in the region pose serious challenges to the nascent signs of recovery in the region. In a noteworthy development, the IMF board approved a two-year, $17 billion emergency aid for Ukraine to avoid a collapse of its economy. In today’s trading session, the common currency is range bound against its major counterparts as most European markets are closed today in the wake of a holiday for Labour Day. Investors’ sentiment today will be driven by a raft of data coming from the US and the Fed Chief, Janet Yellen’s speech.

Other Currencies – Highlights

The Aussie Dollar is trading firmer against the greenback this morning, shrugging off weak domestic and Chinese manufacturing sector reports. Data indicated that Australian manufacturing activity contracted further for April to reach near its lowest level since July 2013, largely due to a fall in new orders. The continued weakness in the manufacturing sector has further added to fears that any tax hike by the Australian government in its May budget might put more pressure on the manufacturing industry. Separately, data revealed that Chinese manufacturing activity expanded slightly less than expected for April. With no domestic macro data today, markets will look forward to today’s US ISM manufacturing sector report and tomorrow’s non-farm payrolls data for further direction. In the forthcoming week, apart from the Reserve Bank of Australia’s monetary policy decision, investors have their plates full in terms of domestic data including employment numbers, retail sales along with construction and services sector reports.