Pound still battling Brexit woes - can Mark Carney help lift sentiment

Today’s macro highlights:

GBP - Markit/CIPS UK Construction PMI (August)

USD - ISM Manufacturing (August)

As UK politicians prepared for the return to work, the Brexit grandstanding accelerated during yesterday’s session, acting as an inevitable drag on the Pound. On top of this, the currency was rattled further by a big shortfall in Manufacturing PMI - a number which ought to be finding meaningful support off the back of a weaker currency, but instead is being undermined by the ongoing economic uncertainty.

9.30am BST sees the publication of the Construction PMI reading for August. The figure is expected to come in around the 55 level, a notable dip from the reading we saw in July. However, that print itself was a twelve-month high, so assuming the print isn’t much below forecasts then markets may prove forgiving. It is however tomorrow’s Services PMI data that will have the potential to carry the most significant weight for the currency.

US markets return to work after the long weekend, with 3pm BST bringing the US ISM Manufacturing index print. Consensus forecasts see a modest decline here which goes against much of the US economic data that has been seen of late. This is a leading economic indicator so could in isolation apply some downside pressure to the dollar. However, any progress in US trade talks will be closely watched - we saw the greenback rally sharply on Friday in the wake of apparent progress and by all accounts this news has the potential to dominate sentiment.

Mark Carney’s future as Bank of England governor also has the potential to sway sentiment over the Pound in the near term. The Treasury has been reported to be in negotiations with him over extending his tenure again, and the subject is expected to come up when he meets MPs later today. A degree of continuity at the Bank would have the potential to help lend some much needed support for Sterling, with the big question being whether a high calibre replacement could be convinced to take up the role against such a backdrop of economic uncertainty.

GBP/USD

The Pound posted its biggest one day fall in a month against the dollar yesterday - despite no economic data coming out of the US owing to market holidays. Downside risks will prevail for the Pound, although disruption to US trade talks or a bigger than expected decline in today’s ISM reading could offer the pair some temporary respite.

EUR/USD

With little in the way of fundamentals to work on during yesterday’s session, EUR/USD finished the day broadly unchanged. As we have seen before however, the Euro is at risk of selling pressures if we see any major political or economic event emerging from the UK. With leadership challenges being eminently possible, this risk cannot be understated.

GBP/EUR

That miss in UK manufacturing PMI combined with Brexit uncertainty saw the Pound post its biggest one day fall against the Euro in three months. The pair will remain volatile as the Brexit debates drag on and as we’ve seen, any hint of concessions from the EU come with the potential to see some marked rallies.