Demand for the Pound (GBP) has continued to weaken today as the UK construction sector slows, raising concerns that economic growth is softening, while the US Dollar (USD) has recovered from yesterday’s disappointing ISM Manufacturing Index.
Pound Sterling (GBP) Bearish as UK Manufacturing and Construction PMIs Decline
Yesterday’s UK Manufacturing PMI proved rather more disappointing than expected, slipping from 55.2 to 52.7 in November as growth in the sector slowed markedly. Although traders had been anticipating a decline in manufacturing output, this weaker result nevertheless saw the Pound (GBP) trending lower against rivals. This rather overshadowed the more optimistic news that the seven banks involved had passed the Bank of England’s (BoE) latest stress test, indicating that British banking has a general capability to withstand a major global financial shock. As the BoE remains more dovish in tone, however, an early 2016 interest rate move is looking increasingly unlikely which in turn has weighed further on the appeal of Sterling this week.
The Pound has remained softer on Wednesday morning as the November Construction PMI also fell short of forecasts, declining sharply from 58.8 to 55.3 to clock in at a seven-month low. This poorer performance does not encourage optimism for the upcoming Services PMI, which carries the most weight with pundits as the major driving force behind the UK economy. Should this final PMI continue the trend and demonstrate slowness then Sterling is likely to extend its present slump.
Euro Currency News: EUR Trending Cautiously ahead of Eurozone Inflation and ECB Meeting
Both the German and Eurozone Unemployment Rates showed an unexpected improvement in November, shoring up the Euro (EUR) in spite of investor caution ahead of tomorrow’s European Central Bank (ECB) policy meeting. Unemployment within the currency union fell from 10.8% to 10.7% which, although an improvement, is still substantially higher than in the US or UK. With wage pressures likely to remain low, this was not enough to keep the single currency on an uptrend as the prospect of fresh ECB monetary loosening looms.
Although this morning’s Eurozone Consumer Price Index is forecast to uptick from 0.1% to 0.2% sentiment towards the Euro is expected to remain generally muted over the coming day. However, a particularly strong increase in inflation could potentially lessen the case for more extreme ECB quantitative easing measures.
ISM Manufacturing Underperformance Prompts US Dollar (USD) Downturn, Odds of 2015 FOMC Rate Hike Lower
Hawks were not encouraged to discover that manufacturing activity in the US had fallen into contraction territory on the month in November. The ISM Manufacturing Index defied forecast to retreat from 50.1 to 48.6, a substantial weakening that saw confidence in the US Dollar (USD) distinctly dented. Although markets remained largely of the opinion that a December interest rate rise from the Federal Open Market Committee (FOMC) is still on the way, this unimpressive result prompted a strong ‘Greenback’ downtrend.
Later today the ‘Buck’ could return to more bullish form with a good ADP Employment Change figure, as the measure should give a better indication as to the strength of Friday’s Change in Non-Farm Payrolls. Increasing employment is likely to keep the Fed on track for a 2015 rate hike, but another shortfall could see the case for higher interest rates softened.
Current GBP, EUR, USD Exchange Rates
At time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was slumped in the region of 1.4149, while the Pound Sterling to US Dollar (GBP/USD) pairing was trending lower around 1.5038. Meanwhile, the Euro to US Dollar (EUR/USD) exchange rate was trending narrowly in the range of 1.0628.
