Sterling Strengthens Despite Construction Slowdown
The Pound continued its rally upwards against the US Dollar, remaining unaffected by data showing that July’s construction activity in the UK declined significantly, missing analysts’ expectations. The survey, released by IHS Markit, showed that the UK’s construction sector experienced a growth slowdown, expanding at the weakest pace in the last eleven months.
In the US, the political uncertainty is one of the factors that keep the US Dollar low against its competitors. The White House confirmed that president Trump played a role in drafting a statement about his son’s meeting with a Russian lawyer. According to law experts, helping to draft a false statement may be deemed as an obstruction of justice.
Pound Sterling – UK Markets
Today, Sterling jumped against the US Dollar, with the exchange rate set at $1.32. The Pound weakened against the Euro, with the exchange rate set at €1.11.
IHS Markit published its UK Construction PMI data for the month July, which were much weaker than anticipated. The construction sector activity growth hit an eleven-month low, revealing a notable slowdown after reaching a seventeen-month high in May. Data showed that new orders declined, leading to fewer jobs being created. Commercial work also fell at the fastest pace in the last year. Markit’s report stated that construction firms’ clients were more reluctant to spend because of the economic and political uncertainty in the UK.
The National Institute of Economic and Social Research (NIESR) published a set of optimistic forecasts regarding the UK economy’s expansion. According to its analysts, economic growth will accelerate to 1.9% in 2018, which will be 0.2% more than in 2017. The report says that the weak Sterling will help exports get a boost and real wages will be increased. NIESR’s director, Jagjit Chadh, predicted that the Bank of England (BoE) will raise borrowing costs after the second quarter of 2019, initiating a slow process of returning to high interest rates.
US Dollar – US Markets
The US Dollar slumped against the Euro, with the exchange rate set at €0.84. A series of weak data releases regarding the US economy and the continuing political uncertainty have affected the US currency.
Motor vehicle sales in the US fell by 7% in July, on a yearly basis, which is the biggest drop in the last seven years. According to some economists, there is a gap between what the manufacturers say and how consumers behave. They suggest that although manufacturers say the conditions are good, the downward vehicle sale trend indicates that there is little space for growth. Car production has declined as companies respond to falling sales. According to the Institute for Supply Management (ISM), the US factory activity was reduced in July, after hitting a three-year high in June.
Apple is on a steady march upwards and is in striking distance of being a $1 trillion company. The company released its second quarter earnings report accompanied by a bullish forecast for the next quarter’s sales. Investors sent Apple’s stock up by 6%. Since the beginning of the year, Apple stock’s value has increased by more than 30%. In September, Apple is expected to unveil the new iPhone, marking the ten-year anniversary since its first launch in 2007.
Euro – European Markets
The Euro rallied against the US Dollar, taking advantage of its weakness, with the exchange rate set at $1.18. Investors and traders continue to cheer on the latest upbeat Eurozone growth data. Analysts suggest that the positive data will make the European Central Bank consider unwinding its monetary policy program as soon as possible.
Eurostat published its Producer Price Index data for the month of June. According to Eurostat, producer prices grew by 2.5%, on a yearly basis, beating analysts’ expectations of 2.4%. On a month to month basis, producer prices declined by 0.1%, in line with forecasts.
Data released from the Spanish Ministry of Employment and Social Security showed that unemployment fell further in July. The fourth largest economy in the Eurozone now enjoys the lowest unemployment rate (17.1%) since the beginning of the financial crisis in 2009. Youth unemployment, which includes people aged under 25, came in at 12%, which is higher than the Eurozone average of 9%, but much better than almost 50%, back in 2013.
Other Currencies – Highlights
The Pound strengthened against the Australian Dollar, trading at 1.66 AUD. The Australian Bureau of Statistics (ABS) released a survey which showed that building permits in June surged by 10.9%, in contrast with the 5.4% drop recorded in May. The result smashed the market’s expectation for a 1% gain. Daniel Rossi, the director of Construction Statistics at ABS, said that the June data showed that the number of approvals is now 15% below the peak witnessed in May 2016.
Sterling jumped against the New Zealand Dollar, trading at 1.78 NZD. The Kiwi suffered when the Statistics New Zealand released data regarding unemployment in New Zealand for the second quarter of the year. The unemployment rate dropped to 4.8%, which is the lowest level since the end of 2008. However, a negative surprise came from the drop of the labour participation rate at 70%, down from an all-time high in the first quarter of 2017. According to the ANZ bank, traders overreacted selling off the Kiwi, but the results of the survey won’t make the Reserve Bank of New Zealand (RBNZ) change its stance.