UK Construction Activity Expands at a Slower Pace

Coming on the heels of yesterday’s dismal British mortgage approvals data, the just out weak construction PMI report has pointed towards a deceleration in the housing sector of late, as high prices continue to hinder house purchases. However, with the overall economic activity in the nation picking up steadily, next week’s services PMI report will be closely watched for further insights into the same. In the US, the non-farm payrolls report due today is expected to suggest a recovering labour market, thereby strengthening speculation that the Fed might raise interest rates sooner than expected. In Europe, today’s broadly upbeat manufacturing PMI numbers will further relieve pressure off the ECB to use additional monetary policy tools in the near term.

Pound Sterling – UK Markets

The Pound touched a five year high against the US Dollar yesterday after manufacturing activity in the UK expanded at a faster than expected pace, mainly helped by growth in new orders. Meanwhile, mortgage approvals unexpectedly dropped for March, an initial sign that the new tough mortgage lending rules might halt the pace of recovery in the UK housing market going forward. Against this backdrop, next week’s other housing reports will be in focus for further insights into the pace of recovery in the sector. However, gains in Sterling were capped following upbeat US ISM manufacturing sector report, thus confirming that the world’s largest economy remains on track of recovery. Sterling is range bound against its major counterparts this morning. Data just out revealed that the UK construction activity eased more than expected for April. The mixed manufacturing and construction sector prints for April have shifted market focus to next week’s services PMI report which is expected to prove crucial for Sterling investors. Apart from the BoE’s monetary policy meeting and services activity report, next week’s industrial production and trade data will also be eyed for further direction.

US Dollar – US Markets

The ISM report released yesterday indicated that manufacturing activity expanded to a four month high for April, helped by an increase in orders and demand. This has supported the US Fed’s recent statement that the economy is recovering from the weather related weakness. However, the report failed to lift the US Dollar against most of its major counterparts as the optimism was offset by another report indicating that the number of people filing for jobless benefits unexpectedly rose last week, though it was largely due to volatility caused by Easter holidays. Meanwhile, the US Dollar is trading in a tight range against the majors this morning. Against the backdrop of strong ADP private sector employment numbers released earlier this week, today’s non-farm payrolls is also expected to show a faster pace of hiring for April. This would support the Fed Chief’s stance of reducing bond purchases by $10 billion at its latest policy meeting. Next week, with no major decisive triggers in the US, investors will keep a close watch on speeches by few US Fed officials for further hints over the central bank’s future monetary policy stance.

Euro – European Markets

The just out European manufacturing PMI reports have confirmed the continued expansion in manufacturing activity in the region, although the largely upbeat numbers had little positive effect on the Euro which continues to trade in a tight range against the US Dollar this morning. While inflation in the currency bloc has continued to remain subdued, other gauges of the economy have shown a steady improvement of late. Against this backdrop, the ECB is likely to adopt a wait and watch approach towards introducing quantitative easing measures in the Euro zone in the near term. Later today, the Euro zone unemployment report and the US non-farm payrolls data will determine trading sentiment in the Euro-US Dollar pair. With little on the domestic macro front yesterday, the single currency traded on a weaker footing against the greenback tracking mixed US economic reports. Moving forward, while the ECB is expected to stick to its policy stance for now, the monetary policy meeting scheduled next week will gain considerable market attention for cues about its future policy stance.

Other Currencies – Highlights

The Japanese Yen is trading under pressure against most of its major counterparts in today’s trading session, even though data released earlier today showed that household spending in Japan for March climbed at the fastest annual pace since 1975, on the back of higher demand ahead of the 3% hike in consumption tax which came into effect from April 2014. However, a significant rise in private consumption before the sales tax hike suggests that a possible correction in coming months might be on the cards, thereby leading investors in the Japanese Yen to trade cautiously this morning. Meanwhile, the unemployment rate in the nation held steady at 3.6% for March, the lowest level since December 1997. With no domestic economic data on tap today, market participants will keep a tab on the US labour market report for further direction to risk appetite. In the forthcoming week, the minutes of the latest BoJ monetary policy meeting, together with a slew of global macro releases, especially crucial economic data from China, will keep investors in the Japanese Yen interested.