Despite Eurozone weakness, Pound remains on the back foot
Today’s news headlines:
- 'Eurozone industrial sentiment falls to five-year low’. Data from the European Commission showed industrial confidence at its lowest level in five years, heaping fresh pressure on the European Central Bank (ECB) to accelerate intervention plans. (Financial Times)
- 'Australian Dollar slips as China data hits risk’. A shortfall in the Chinese Manufacturing Purchasing Managers’ Index (PMI) overnight has seen investors shy away from risk assets, although it has been the Yen, and not the US Dollar, which has seen the bulk of buying. (Reuters)
Data released yesterday raised concerns once again over the state of the Eurozone economy. A slowdown in lending, combined with waning industrial confidence, suggests that the currency bloc is still yet return to a robust expansionary pace. These data points will heighten pressure on the European Central Bank to intervene as it attempts to navigate the economy away from recession. With the Federal Reserve’s policy meeting this week and Friday’s US employment data expected to impress, the Euro could find itself under pressure against the Greenback once again.
There has been some better-than-expected economic data out of China in recent weeks, but the mood darkened a little overnight when the Manufacturing PMI printed short of expectations. However, the Yen was the primary beneficiary of the resulting risk-off movement, not the US Dollar. Given that the DXY Dollar Index is coming off two-years highs, it isn’t a stretch to suggest that the market views the Buck as overbought. Any further signs of weakness in emerging markets or a more hawkish stance from the Federal Reserve could see the Greenback make further gains in the near-term.
The Dollar has edged lower against the Pound, which is sitting at the bottom of a two-month trading range. Brexit inertia and the likelihood of heavy losses for the Conservative Party in Thursday’s local elections also stand to keep Sterling under pressure.
The Euro found some upside against the US Dollar yesterday after slightly softer-than-forecast US inflation data emerged. Euro gains could prove difficult to sustain given the ongoing stream of downbeat economic news emerging from the bloc.
The Pound continues to trade broadly sideways against the Euro. Optimism over cross-party Brexit talks may be sufficient to provide a degree of support for the Pound.