The Pound weakened to its worst levels since the June general election, yesterday. Weak manufacturing figures weighed on Sterling, followed by Brexit uncertainties ahead of tomorrow’s speech by prime minister Theresa May. If May indicates plans for a “soft” Brexit, where the UK maintains regulatory and trade ties with the EU for some years, the Pound might benefit.

The stronger US Dollar also helped to drive the Pound down, as the released manufacturing data show US factory growth expanding at the best rate in 13 years. The positive news lifted Wall Street to record closing levels, pushing world markets higher. Growing confidence that the US Federal Reserve will raise interest rates in December is also supporting the Dollar.

Pound Sterling – UK Markets

Sterling has slipped against the US Dollar, with the exchange rate set at $1.32. Sterling slid against the Euro with the exchange rate set at €1.13.

Today’s Markit Construction Purchasing Managers Index (PMI) shows a sharp fall in building sector growth from 51.1 in August to a 14-month low of 48.1 in September. This is more worrying than the expected slowdown to 50.8, because any reading under 50 indicates contraction. September is the first month to have contraction in growth since July 2016. The decrease in commercial building indicates less business investment, caused by Brexit uncertainties.

Yesterday’s Manufacturing PMI showed that the UK factory output slowed down by more than had been expected, which contributed to the Pound slipping. The services sector is expected to continue unchanged with a reading of 53.2 when the Services PMI is released tomorrow.

Tomorrow could prove to be an eventful day for the Pound, as global markets will be attentive to Theresa May’s closing speech for the Conservative Party in Manchester. The conference focused on the split in her cabinet and business leaders aired concerns about “division and disorganisation at the heart of the party.” May is said to be more supportive of Chancellor Philip Hammond’s “soft” Brexit than Foreign Secretary Boris Johnson’s wish for a “hard” Brexit.

US Dollar – US Markets

The US Dollar performed well against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY) is slightly higher, at 93.54.

The US Dollar rose to its highest level in a month in the Asian Pacific markets, as the Australian Dollar and New Zealand Dollar fell after the Reserve Bank of Australia’s policy announcement. The Japanese Yen also slipped against the US Dollar as investors anticipate that the US Federal Reserve (Fed) will soon raise interest rates. CME’s Fedwatch indicator had set the odds of a rate hike at 42% last month, and they now project a 71% likelihood of a December increase.

“Until we see a fresh commitment from the European Central Bank to scale back its policy stimulus, the Dollar will continue to gain against the Euro,” noted a Commerzbank analyst. The Dollar is at its highest levels since 17 August, but it is 8% weaker for the year and facing its largest annual decline in a decade.

The US Institute for Supply Management (ISM) manufacturing index released yesterday showed US manufacturing output at its fastest rate of growth in 13 years. The September index rose to 60.8 after August’s figure of 58.8, with firms reporting an increase in new orders that have prompted them to boost production. In the Purchasing Managers Index released by Markit, however, manufacturing also rose but more modestly, by 53.1, up from 53. The data from ISM drove the New York stock markets up to record closing levels which then pushed global markets higher.

Euro – European Markets

The Euro is rising against the US Dollar with the exchange rate at €1.17. The Euro strengthened against the Pound, trading at €0.88.

Addressing the European Parliament today, Michel Barnier, the EU’s chief negotiator, said that the progress made was insufficient, making it difficult to move ahead this month with discussions of a future trade deal between the UK and the EU. Barnier noted, “There are still serious divergences, in particular on the financial settlement.”

At a London event yesterday, Peter Praet, the European Central Bank’s (ECB) chief economist said that during the times when the financial markets are calm, investors may become “more patient” about the ECB’s smaller, more extended bond purchases. Later in the month, the ECB will make a decision regarding the extension of asset purchases and, Praet’s comments indicate that policymakers are more likely to choose a longer extension with smaller monthly purchases rather than larger purchases over a shorter period of time.

Other Currencies – Highlights

The Pound rose against the Australian Dollar, with the exchange rate at 1.69 AUD. There was little reason to expect the Reserve Bank of Australia (RBA) to announce any changes to their monetary policy at their meeting today. The RBA is not expected to adjust Australia’s interest rates from 1.5% until February of 2018, at the earliest, suggest market analysts. On Thursday, Australia’s trade balance is expected to show an August surplus of $0.9 billion due to increased volumes of exported iron ore.

The Pound picked up a little ground to the New Zealand Dollar, trading at 1.85 NZD. Both the Kiwi and the Australian Dollar fell against the US Dollar after the RBA Governor Philip Lowe commented that “an appreciating exchange rate would be expected to result in a lower pick-up in economic activity and inflation than currently forecast.” The New Zealand Institute of Economic Research (NZIER) Business Confidence report was released yesterday. The third quarter reading of 5% was a drop from the second quarter figure of 18%. The September reading had reflected political nervousness across all sectors of business ahead of the 23 September general election.

Sterling rose against the Japanese Yen, trading at ¥150.17. The Yen was not strengthened in spite of a better than expected Tankan business survey released by the Bank of Japan (BoJ). The large manufacturing index rose to 22, the highest level seen in a decade. Small manufacturing output was at its highest levels since 2006. The Yen hasn’t been moved by economic data, no matter how positive, because inflation is at 0.7% and the BoJ remains focused on a figure of 2% inflation before adjusting their monetary policy. On 22 October, Japanese voters head to the polls for the snap election called by prime minister Shinzo Abe who has gained approval in polls for his tough stance against North Korea.