Today’s macro highlights:
Pound punished yet again by more downbeat economic data.
Sterling tumbled yet again during Tuesday’s session as the market reacted to a double whammy of weak manufacturing PMI data and a sharp drop in consumer borrowing. Cable posted its biggest one day fall in three months whilst the pair has also now fallen for nine of the last eleven days. That PMI reading still came in above the all-important 50 level although it was notably below what had been forecast. Perhaps more troubling however was the evaporation of unsecured consumer borrowing, which had been expected to print around £1.4 billion for March and instead came in at £250 million. Bad weather and lenders’ reactions to the Bank of England’s prior concerns over prolific borrowing may be to blame here, but with real wages now rising, the news also reflects a lack of confidence amongst consumers over the outlook.
The UK construction PMI reading will be published at 9.30am BST and hopes are running high that a meaningful rebound from the snow-impacted March figure will be seen. However, what looks increasingly like a darkening economic backdrop, is this simply the market setting itself up to fail once again? Failure to print a number above the break-even 50 mark would arguably have the potential to initiate another round of selling for the Pound, even from these depressed levels.
Eurozone GDP numbers are scheduled for 10am BST and with the currency bloc’s economy showing the early signs of a slowdown, again this reading will be very much in focus. Only once growth is being sustained can the ECB look towards winding down QE then ultimately starting to tighten monetary policy, so any hints of stagnation could heap further pressure on the Euro, especially against the resurgent greenback.
7pm BST this evening marks the Federal Reserve’s latest call on interest rate policy. No change is expected to be announced today, but with inflationary pressures picking up, the precise wording of what we hear will be closely followed. There’s a genuine expectation that next month’s meeting will see rates rise again, but today it’s likely to be about nuance. The US has now posted its second longest period of sustained economic expansion since records began, but the average rate of growth through the period has also been a mere 2.2%. The risk revolves around not stubbing out growth altogether.
The pair has fallen for nine of the last eleven sessions, totalling an almost eight cent decline since the middle of April. A break into the lower 1.30’s and a return to levels not seen since December needs to be considered if we don’t see a pickup in the UK economic data.
We’re currently below 1.20 on the pair after another challenging session yesterday. More than half the gains of the rally seen between November and January have now been given back and a return towards those lows from the latter half of last year could be seen if the divergence between economic prospects in the EU and US continues.
After posting the best part of a one cent rally ahead of yesterday’s disappointing data, the pair is now back at levels not seen since mid-March. Given the softening state of the Eurozone economy, there may be some scope for a modest rebound here if UK readings cam show some promise - but that’s certainly not what we’re seeing played out just yet.