While the balance of political progress may have to wait until next week’s key vote in parliament, yesterday’s economic data release laid bare the fact that Brexit uncertainty is strangling investment. The UK Construction PMI fell into contraction for the first time in almost a year, dragging on the Pound as a result. Attention will now be on today’s Services PMI print to see if this tells the same story. As the dominant sector in the UK’s economy, a reading below the break-even 50.0 mark has the potential to hit Sterling rather soundly.
The Eurozone economy has been showing marked signs of a slowdown since late last year. Pressure is now building on the European Central Bank to take action and deliver stimulus measures to boost the economy. Revolving around lower interest rates and or increased borrowing, such moves are generally negative for the currency involved. This expectation is already weakening the Euro, and the trend has the potential to persist, regardless of action announced by the ECB on Thursday. Stimulus measures will weigh on the common currency, but given the slowing economic data, a failure to act is unlikely to be interpreted as a sign of strength.
The Pound is continuing to sell off against the US Dollar, with Brexit uncertainty and disappointing economic data giving little reason for cheer. A positive Services PMI reading today is only likely to slow any sell-off temporarily as the bigger questions over Brexit linger.
Declines for the Euro against the US Dollar may be modest, but the pair has now posted four consecutive losing sessions. With speculation that a US-China trade deal will do nothing to bolster trade elsewhere and uncertainty over ECB stimulus measures, support for the common currency is thin on the ground.
Brexit optimism supporting the Pound after the weekend break was overshadowed by the disappointing Construction PMI print yesterday, leaving the cross little changed from its position at the end of last week. However, the prospect of ECB intervention over the Eurozone economy may yet be sufficient to limit further downside in the days ahead.