UK Services PMI Drops
Today’s services PMI reading from the UK showed that the pace of expansion in the service sector activity is slowing. This has further added to concerns of a possible delay in the timing of an interest rate rise in Britain, especially after a report released by the NIESR earlier today revealed that the BoE is likely to keep interest rates unchanged until after the general election next year. This quandary has put the Pound under pressure against the majors this morning.
Across the Atlantic, the ISM non-manufacturing PMI and ADP employment data will gain considerable market attention as traders seek to gain a better picture about the nation’s macro health for October.
Pound Sterling – UK Markets
Data just out has shown that services PMI in the UK eased for October. Considering the major contribution of the services sector to UK GDP, a slowdown in this sector has heightened concerns among market participants that economic growth in Britain is losing momentum during the fourth quarter of 2014. In response to today’s weak data, Sterling is trading lower against both the greenback and the Euro. Additionally, the NIESR indicated that the BoE would keep rates on hold until June 2015, slightly later than its previous forecast of a February 2015 rate increase. However, the agency raised its 2015 economic growth forecast on the UK economy. Moving ahead, the official manufacturing production data in the UK tomorrow might attract some attention, although the main focus is expected to remain on the BoE policy meeting. Officials are unlikely to reconsider their policy view in tomorrow’s policy meeting, especially considering weak macroeconomic conditions in Europe.
In yesterday’s trading session, the Pound showed little reaction against the US Dollar to the weak UK construction PMI report.
US Dollar – US Markets
The greenback is trading higher against its major peers this morning ahead of today’s ISM non-manufacturing PMI and ADP employment data in the US. The ISM survey is expected to show a slight deterioration in the pace of activity in the nation’s services sector for October. Separately, the ADP employment report will gain attention, given the influence of the labour market in structuring the Fed’s monetary policy going forward. The report is likely to show that the private sector added more than 200K jobs for a fifth straight month. However, any downside in today’s ADP report is likely to increase caution among investors ahead of the official jobs report scheduled on Friday. Meanwhile, the Republicans have gained control of the US Senate following mid-term elections. With Republicans holding majority in both the houses, the implications of the election results on the nation’s fiscal policy remains to be seen.
In yesterday’s trading session, the US Dollar lost ground against the common currency after data showed that trade deficit in the US widened more than expected for September, as exports from the nation took a hit due to subdued global demand.
Euro – European Markets
After registering a rebound yesterday’s trading session, the single currency has failed to hold on to its gains and once again slipped close to the 1.25 mark against the US Dollar this morning. Meanwhile, data released earlier today showed that services PMI readings in Germany and the Euro zone were revised downwards for October. Moving ahead, traders will keep a tab on Euro zone retail sales data which is anticipated to show a slowdown in annual retail sales growth for September. Weak retail sales data might further validate fears that deteriorating consumer confidence and the threat of deflation pose challenges to the Euro zone’s economic recovery. Going forward, the ECB’s policy meeting is likely to attract considerable market attention tomorrow. In the midst of growing division among the ECB’s policymakers, it remains to be seen if Mario Draghi exercises caution while elaborating the central bank’s policy goals for the future.
Meanwhile, in a noteworthy development yesterday, the European Commission downgraded the region’s economic growth forecast for 2014 to 0.8% from 1.2% and for 2015 to 1.1% from 1.7%.
Other Currencies – Highlights
The Kiwi Dollar gained ground against the greenback and crossed the 0.78 mark in the latter half of yesterday’s trading session following the release of upbeat labour market data in New Zealand. Data showed that the unemployment rate in the nation dropped and the number of job additions in the economy was more than expected for the third quarter. This has raised expectations among market participants that the robust labour market recovery is likely to create an upward pressure on wage earnings and boost the nation’s inflation.
However, the New Zealand Dollar has pared its gains and is trading below the 0.78 mark against the US Dollar ahead of today’s ADP employment and ISM non-manufacturing PMI reports in the US. With no other important macro releases in New Zealand this week, traders will also keep a tab on the official US labour market report scheduled this week for further direction to risk appetite.