UK Manufacturing Data Beats Expectations
The Pound has gained a little strength against most major currencies today, with the exchange rate against the US Dollar set at $1.33. The Pound also rose against the Euro, trading at €1.14. Sterling was strengthened by the news that Michel Barnier, the EU’s chief negotiator is prepared to speed up talks with the UK. Barnier told reporters: “We have clearly proposed three (different dates) for new rounds. In the next few hours or days we’ll be working with British delegations to find the right dates because we need to work in a very intense way to find this agreement before December.”
Today’s key data release is the IHS Markit UK Manufacturing Purchasing Managers Index (PMI), which came out at 9:30 GMT. It beat expectations, especially, after September’s reading fell lower than had been expected. Today’s PMI came at 56.3 in October, higher than September’s reading of 56.0.
The US Dollar inched higher against the Euro with the exchange rate set at €0.85. Analysts suggest that the Federal Open Market Committee (FOMC) will keep interest rates on hold at 1.25%. Janet Yellen will be presiding over, probably, one of her last monetary policy meetings as the Fed’s Chair.
Pound Sterling – UK Markets
The Pound has gained a little strength against most major currencies today, with the exchange rate against the US Dollar set at $1.33. The Pound also rose against the Euro, trading at €1.14.
Yesterday, 31 October, Sterling was strengthened by the news that Michel Barnier, the EU’s chief negotiator is prepared to speed up talks with the UK. Barnier said the agenda for the next round of negotiations would be set out “in the next few hours or days,” according to Reuters. The report was a boost for the Pound since it decreases the chance that no deal will be reached. The next round of four days of discussions begins Wednesday, 8 November. The UK Secretary for Exiting the European Union, David Davis has proposed to hold talks on an on-going basis, rather than the once a month schedule, in hopes of reaching compromises on the divorce terms so that trade can be negotiated.
The Bank of England’s (BoE) Monetary Policy Committee meeting starts today, ahead of expectation that the BoE will announce a rate increase of 0.25% to 0.5%. The effect will be felt most strongly by mortgage holders and consumers carrying debt. The Nationwide building society released its monthly UK house price report today. Annual house prices grew by 2.5%, while month-on-month prices rose by 0.2%, as had been expected.
Today’s key data release is the IHS Markit UK Manufacturing Purchasing Managers Index (PMI), which came out at 9:30 GMT. It beat expectations, especially, after September’s reading fell lower than had been expected. Today’s PMI came at 56.3 in October, higher than September’s reading of 56.0. Analysts anticipated October’s PMI to register at 55.8, down slightly from September’s figure of 56.0, which was a sharp drop from the previous month’s figure of 56.7. The outlook for the sector, however, remains positive, since the long-term average figure is 51.7.
Rob Dobson, Director at IHS Markit said: “UK manufacturing made an impressive start to the final quarter of 2017 as increased inflows of new work encouraged firms to ramp up production once again. The sector looks to be achieving a quarterly rate of expansion close to 1%, therefore sustaining the solid pace of growth signalled by the official ONS estimate for the third quarter. The domestic market remained strong, whereas new export orders increased at a slightly slower pace, the latter showing signs of being hit by the recent strengthening of sterling.” The health of manufacturing and rising price pressures will possibly boost expectations of a Bank of England rate hike on Thursday.
US Dollar – US Markets
The US Dollar inched higher against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY), which measures the value of the Dollar against a basket of six major currencies, gained ground coming in at 94.61. In the evening, the Federal Reserve is going to announce its decision on interest rates.
Analysts suggest that the Federal Open Market Committee (FOMC) will keep interest rates on hold at 1.25%. Janet Yellen will be presiding, probably, one of her last monetary policy meetings as the Fed’s Chair. On Thursday, President Donald Trump is expected to announce the name of her successor. Economists believe that Fed Governor Jerome Powell will succeed Yellen in an effort by the US administration to turn the Fed more hawkish and reduce regulations.
A report by Nomura noted that despite the weakness in inflation, it is unlikely that the FOMC will announce a change in its inflation outlook. Nomura’s analysts believe that the members of the committee would like to see one more inflation print ahead of December’s meeting, in which a rate hike is expected to be announced. In other news, Republicans are going to publish the new tax legislation on Thursday instead of today.
Euro – European Markets
The EUR/USD pair’s outlook remains negative, since the pair is around $1.16/1.17. The pair has dropped back in the range of $1.16 due to positive European equities and renewed broad-based USD buying. Markets are awaiting the FOMC Committee policy outcome, so trading is cautious. Currently the EUR/GPB is down and is trading at £0.87.
British and EU negotiators met in Brussels yesterday and agreed to extend the negotiations, with the next meeting now set to take place on 9-10 November. With only 17 months remaining until the UK formally leaves the European Union, and fear of leaving without a deal, businesses are increasingly worried and are unable to make any investment decisions. Within this framework of uncertainty, the British government has updated its Brexit plans. In her meeting yesterday, the PM Theresa May met with her ministers who are now preparing to add a further 3,000-5,000 workers next year and for making available £500m ($660,45m) for Brexit. May’s spokesman told reporters: “Alongside the negotiations in Brussels, it is crucial that we are putting our own domestic preparations in place so that we are ready at the point that we leave the EU.”
In anticipation of the 15 December summit on Eurozone reformation, Eurozone finance ministers will be meeting next week to discuss the banking union, setting up a common budget and ways to streamline the bloc’s fiscal rules, which have become too complex and ineffective. The Eurogroup meeting on Monday will focus on proposals for deeper integration, including the creation of a special pool of money for Eurozone countries managed by one finance minister who would report to the European Parliament.
Other Currencies – Highlights
Sterling edged lower against the Australian Dollar, trading at 1.73 AUD. The British Home Office confirmed that Australia’s Senate President Stephen Parry is also a UK citizen. Parry informed the government that he will resign from his place as a Senator. House price growth in Australia stalled in October, according to a survey by Corelogic. The stall occurred because of a 0.5% decline recorded in the area of Sydney, which is the most expensive and large in the country.
The Pound retreated against the New Zealand Dollar after many days of recording gains, trading at 1.92 NZD. A survey by Statistics New Zealand indicated that unemployment rate fell in the third quarter of the year to 4.6% from 4.8% in the previous quarter, surpassing expectations. Participation rate also increased to 71.1%, more than anticipated which is a sign that the labour market grew stronger in the last three months.
Sterling moved higher against the Polish Zloty, trading at 4.83 PLN. A survey by Euler Hermes showed that 255 Polish businesses became insolvent in the third quarter of 2017, which is the highest number recorded in the last five years.