Positive UK Manufacturing Data

Data just out indicated that construction activity in the UK expanded at a faster pace for August, providing some relief to investors following yesterday’s weak manufacturing activity report. Market attention has now shifted to tomorrow’s crucial services PMI report for further direction. The recent mixed economic data has validated the central bank’s move to keep its policy stance unchanged for some more time. With US markets returning from a holiday, today’s official manufacturing activity report will gain market interest and is likely to show a slight slowdown, in line with mostly weak regional manufacturing data released lately. Additionally, investors will keep a close watch on developments in Ukraine amid prospects of additional EU sanctions against Russia.

Pound Sterling – UK Markets

Data just released indicated that construction activity in the nation rose unexpectedly for August, in contrast with yesterday’s dismal manufacturing activity report. The construction activity remained largely above the expansion mark, suggesting that positive developments in the housing market might support the nation’s robust economic growth going forward. Against this backdrop, tomorrow’s all important services PMI report will gain increased market attention for a more balanced view on the economy. Additionally, this week’s BoE policy meeting will be keenly eyed to ascertain policymakers’ view over future policy stance, after two officials voted for a rate hike in the last meeting. In the absence of major decisive triggers in the US, the Pound traded in a tight range against the US Dollar in yesterday’s trading session. Meanwhile, data indicated that manufacturing activity in the UK grew at its slowest pace in 14-months for August, indicating that domestic conditions remain vulnerable to geopolitical tensions in Ukraine and a slowdown in Euro zone.

US Dollar – US Markets

The greenback is trading in a tight range against the majors in today’s trading session. The ISM manufacturing survey in the US due later today is expected to show a slight deterioration in activity for August. However, growth in US construction spending is expected to rebound to a 12-month high, boosting speculation about an improvement in the housing market and strengthening the case for robust economic growth during the third quarter. Meanwhile, most of market focus this week is fixated on the official US labour market report scheduled on Friday which is anticipated to show a drop in the unemployment rate and another month of robust job additions. Any improvement in employment conditions in the US is likely to intensify debate among Fed officials to consider a sooner than expected hike in interest rates. Yesterday, the US Dollar limited its downside against the Euro and the Pound following the release of soft Euro zone and UK manufacturing PMI data for August. The US Dollar is likely to remain supported against the Euro, especially amid persistent geopolitical tensions in Ukraine and prospects of additional stimulus measures in the Euro zone.

Euro – European Markets

With little on the domestic macroeconomic front, the common currency is looking for direction against the greenback this morning. The upside in the Euro looks limited ahead of the ECB policy meeting scheduled on Thursday amid prospects that the central bank might move closer towards introducing further easing measures in the Euro zone, especially considering easing consumer price inflation and recent dovish comments from the ECB Chief, Mario Draghi. Additionally, data released yesterday showed that the German GDP contracted for the second quarter and manufacturing PMI readings across most of the European nations eased more than expected for August. Yesterday’s weak macro data along with last week’s deterioration in various confidence surveys suggest that geopolitical tensions in Eastern Europe have left a deeper dent in the region’s economic recovery. Going forward today, markets will keep a tab on today’s Euro zone producer prices and ISM manufacturing PMI numbers in the US for further direction to the Euro-US Dollar pair which is stuck close to the 1.31 mark.

Other Currencies – Highlights

The Aussie Dollar is trading on a weaker footing against the greenback this morning. The Reserve Bank of Australia, in its monetary policy meeting earlier today, kept the key interest rate unchanged at 2.50%. In the monetary policy statement, the RBA Governor, Glenn Stevens, indicated that the central bank is expected to keep its accommodative policy for some time, especially after the unemployment rate reached a multi-year high for July. He further stated that receding mining sector boom along with a strong Aussie Dollar continued to weigh on the nation’s economic growth. Meanwhile, data released earlier today showed that building approvals rebounded unexpectedly for July, strengthening speculation that the robust pace of construction activity might keep the nation’s economic recovery supported. Markets will keep an eye on tomorrow’s Australian GDP data which is expected to show a slowdown in economic growth for the second quarter. Additionally, domestic services activity report scheduled tomorrow is expected to provide further direction to the Aussie Dollar against the majors.