Pound Higher as UK Manufacturing PMI Rises
The week has started off with a string of manufacturing PMI reports from the major economies across the globe. In the UK, the headline PMI number indicated that activity growth in the nation’s manufacturing sector for October was the strongest since June 2014 amid robust improvement in output and new orders.
In Europe, the final survey revealed that manufacturing activity in the Euro zone unexpectedly rose but at a lackluster pace for October. Across the Atlantic, today’s October ISM manufacturing release is anticipated to show that the sector continued to be pressured at the inception of the fourth quarter.
Pound Sterling – UK Markets
The Pound picked up its upside momentum against the US Dollar and the Euro this morning after the just released data indicated that activity in Britain’s manufacturing sector for the previous month was the strongest since June 2014, as the sector shrugged off mounting concerns surrounding the global downturn. The October PMI reading unexpectedly jumped above estimates, a notable improvement from September. The domestic market saw strong improvements in output growth and new orders, with both recording its sharpest expansion since the middle of the previous year. The upbeat data is likely to fuel optimism about the health of the UK economy and its outlook, thus supporting expectations for higher interest rates. The positive factory activity report is in contrast to last week’s CBI industrial trends survey which showed that manufacturing production fell in the three months to October for the first time in two years.
Later this week, spotlight will be on the BoE’s second “Super Thursday”, although no policy change is anticipated given the uncertain growth outlook the UK economy is facing.
US Dollar – US Markets
The Pound – US Dollar currency pair jumped above the 1.54 mark on Friday as the release of mixed economic reports in the US fuelled concerns about the strength of the nation’s economy. Data revealed that growth in personal spending and income in the US slowed more than expected for September and a report from the University of Michigan’s indicated that consumer morale was unexpectedly lower in October.
The US Dollar has failed to completely erase its losses against the Euro this morning as investors’ attention now shifts towards a revised manufacturing survey data which will be followed by the initial release of the US ISM manufacturing index for October. The US manufacturing sector in the recent months have displayed signs of weakness due to the negative impact of the strength of the home currency and weak external demand. However, Markit’s flash survey numbers had shown that manufacturing activity rebounded to a five month high for October. Markets will closely eye the two benchmarks today to see whether they fall closer into alignment in their reading about the health of the manufacturing sector.
Euro – European Markets
The shared currency gave up some of its gains against the Pound this morning after a raft of manufacturing data from across Europe released earlier in the day suggested that the economy as a whole is experiencing growth, albeit weak and from a low base. The new week brought a wave of revised survey results of the Euro zone and its two largest economies for October. The Euro zone PMI for October edged higher than the previous estimate, suggesting that manufacturing activity was relatively resilient in the face of global growth risks. Meanwhile, final data from Europe’s two biggest economies printed a different picture from those of the flash indicators, with German manufacturing firms faring better than initially reported for October and growth in the French manufacturing sector stalling at the same level as in September.
There were also several first look updates for October to consider, including flash indicators of Spain and Italy. Growth in Spain’s manufacturing sector was the slowest since December 2013, while factory activity in Italy accelerated at its fastest pace since July.
Other Currencies – Highlights
On Friday, the Loonie regained some lost ground against the US Dollar after growth figures indicated that the Canadian economy grew for the third consecutive month in August after contracting in the initial five months of the year. Canada’s GDP for August was partly supported by recovery in oil and gas prices and contribution by the manufacturing sector. Looking back, the slowdown earlier in the year was primarily driven by the energy sector which saw reduced investment in drilling and exploration due to an oil price crash. Also, weak data in the US dampened sentiment for the greenback.
Today, market participants will closely monitor Canada’s RBC manufacturing PMI which has consistently shown weakness during the past three months. A further decline in today’s PMI update for October could reignite concerns about Canada’s economic growth outlook for the near term. Traders will also follow key US economic reports and eye oil price movements today for further direction in the currency pair.