Sterling Looks For Direction
The Pound suffered losses against the majors yesterday, impacted by the double whammy of weak public sector net borrowing and CBI factory orders data. Though Sterling’s downside has been limited in today’s trading session, it has struggled to gain momentum due to weak Chinese manufacturing data released earlier today. With little on domestic macro front this week, global developments will be vital in deciding the direction of the Pound against its major counterparts.
In Europe, today’s manufacturing and services PMI data has been uninspiring, thereby strengthening the case for further stimulus in the region. Across the Atlantic, apart from Markit manufacturing PMI data, comments from the US Fed Chief will be keenly eyed for hints on the future course of the monetary policy.
Pound Sterling – UK Markets
The Pound lost ground against both the Euro and the US Dollar in yesterday’s trading session after data showed that the UK public sector net borrowing unexpectedly rose for August due to a drop in tax receipts. Additionally, the Confederation of British Industry indicated that its monthly measure of total factory orders in the UK dropped surprisingly for September. Yesterday’s weak data has raised some concerns about the health of the UK economy and fanned speculation that the British economy might be impacted by the uninspiring state of affairs in the global economy. Also, media reports suggested that the UK Prime Minister has accepted demands that the Conservative Party remain neutral in the referendum on whether to quit the EU.
Sterling has limited its upside against the majors this morning following weak Chinese manufacturing PMI data. With little on the domestic economic calendar today, traders look forward to the US manufacturing data for further cues. Additionally, comments from the ECB and US Fed Chiefs scheduled later today would gain market attention.
US Dollar – US Markets
The US Dollar has started the day on a stronger footing against most of its peers as recent comments from Federal Reserve officials suggested that the US economy was on the right track and would be able to endure an interest rate increase this year. In this context, the release of US durable goods orders and second quarter GDP data on Thursday and Friday, respectively, would be on traders’ radar to gauge further signs of improvement in the world’s largest economy, given its widespread influence on the Fed’s monetary policy stance. Additionally, a speech by the Fed Chief, Janet Yellen, scheduled later today, will be keenly eyed and is expected to provide better clarity on the Fed’s decision to keep borrowing costs unchanged at its policy meeting held last week. Further, the Markit manufacturing PMI data for September due later today will be keenly watched by market participants.
Meanwhile, data released yesterday showed that home prices in the US climbed more than expected for July, buoyed by an encouraging job market and as consumers competed for a limited supply of properties.
Euro – European Markets
The Euro has struggled to move higher against its major peers this morning after PMI readings from the Euro zone and China offered a grim picture and indicated that manufacturing sectors in both the economies continued to suffer under prolonged economic weakness. The flash reading of Germany’s manufacturing PMI for September also registered a lower reading compared to the previous month. The common currency had started today’s trading session on a downbeat note after data revealed that China’s manufacturing activity fell to the lowest in more than six years, putting the world’s second largest economy at risk of a more intense slowdown that could endanger the fragile global recovery.
The common currency moved lower against the US Dollar in yesterday’s trading session after Euro zone’s consumer confidence deteriorated for September to the second lowest level this year. With PMI readings across Europe and China providing little to cheer, markets are expected to shift their attention towards the tone of the ECB President’s comments scheduled later today for further direction.
Other Currencies – Highlights
In today’s trading session, the Australian Dollar has weakened against the greenback after China’s Caixin manufacturing PMI for September registered its lowest reading since 2009, thereby adding to concerns that the Chinese economy might further decelerate going forward. The manufacturing PMI continued to remain in the contraction territory for the seventh month in a row and also missed market expectations. The Aussie Dollar has been under pressure, as a slowdown in China’s manufacturing sector would impact the demand of raw materials from China, its largest trading partner, thereby further deteriorating the export outlook for Australia. In order to counter this discomfort arising from the fragile Chinese economy, the RBA could take measures and further loosen its monetary policy over the coming months.
Data released this morning showed that Australia's leading indicator for July, as reported by the Conference Board, reversed its previous month’s decline and registered a rise. Looking ahead, the Aussie Dollar would be influenced by the release of the US manufacturing PMI report for September scheduled later during the day.