UK Construction Sector Activity Improves
Britain’s construction activity reading today indicated that the sector performed stronger than market consensus for June, indicating that the economy is on a largely firmer footing compared to the first quarter. Following the recent weakness in manufacturing and an improvement in today’s construction PMI reading, investors will now look forward to the services sector reading scheduled tomorrow to gauge the overall health of the economy in the second quarter.
Across the Atlantic, today’s non-farm payrolls report will be important and any positive surprises in the data could raise hopes of a sooner-than-expected rise in interest rates by the Federal Reserve. In Europe, the ongoing crisis in Greece will continue to dominate headlines.
Pound Sterling – UK Markets
The Pound has trimmed part of its losses against the US Dollar, boosted by an uptick in construction activity for June. The just released figures showed that Britain’s construction sector activity expanded at its fastest pace in four months for June, driven by a surge in housing construction. It appears that the unexpected win by David Cameron’s party in the general election has eased uncertainty among businesses and consumers and has led to higher spending.
Sterling traded on a weaker footing against the US Dollar yesterday, while it pared gains against the Euro after a survey data showed that growth in activity in the UK’s manufacturing sector for June unexpectedly slowed to its weakest rate in more than two years. Following the softer factory output data, investors will now look at services growth data, scheduled tomorrow, to gauge the overall growth outlook for the economy in the second quarter. Separately, the BoE Governor Mark Carney yesterday warned that the outlook for financial stability had worsened because of the ongoing crisis in Greece.
US Dollar – US Markets
The US Dollar is trading in a tight range against the Euro, ahead of key economic releases in the US. The non-farm payrolls and a string of other labour market data is scheduled one day earlier than normal, due to the national holiday tomorrow in the US for the weekend Independence Day celebrations. Markets anticipate that today’s update will show a weaker payroll growth. However, additions in non-agricultural business are expected to remain above 200K. Investors will also focus on the unemployment rate and average hourly earnings later today to gauge whether the economy has rebounded from the first quarter slump.
Yesterday’s ADP employment report provided a preliminary glimpse of the state of the labour market ahead of today’s non-farm payrolls. The private payroll provider indicated that US firms added jobs well above market expectations for June, supporting views of a September interest rate increase by the US Federal Reserve. Additionally, another uptick in the ISM manufacturing numbers increased the appeal of the greenback against the majors yesterday.
Euro – European Markets
The shared currency has recovered from its initial weakness and has edged higher against its major currency counterparts this morning. However, the Euro may be unable to sustain gains ahead of the weekend Greek referendum. The Euro-US Dollar currency pair will be primarily influenced today by the US non-farm payrolls report scheduled later. In the Euro zone, producer prices data due later today is expected to attract some market attention. Additionally, the ECB is set to publish its monetary policy meeting accounts.
Yesterday, reports that the Greek government had broadly accepted most conditions for a rescue package lifted the Euro against the major currencies. However, the common currency later trimmed those gains after the Greek Prime Minister Alexis Tsipras urged Greeks to vote against the bailout terms of international creditors in a referendum over the weekend. Meanwhile, Euro zone finance ministers have reportedly refrained from participating in any bailout talks until the cash strapped nation holds a referendum on Sunday.
Other Currencies – Highlights
The Australian Dollar plunged against the greenback following the release of disappointing trade balance data in Australia. The official figures that came out earlier today indicated that Australia’s trade deficit narrowed less than anticipated for May. Australian trade balance had increased substantially in April following weakness in export prices of key commodities such as iron ore and coal. A decline in imports and stabilisation in the value of raw material exports in May was primarily responsible for the improvement in the trade balance numbers for the month.
In the session ahead, the Australian Dollar could succumb to further losses against the US Dollar, if non-farm payrolls in the US, scheduled for release later today, surprise on the upside. Going forward, investors will keep a tab on Australia’s retail sales and service sector performance, due tomorrow, for further direction.