Today’s macro highlights:
UK PMI data impresses again, nudging GBP/USD higher
With a public holiday in the USA meaning no economic news being released from across the Atlantic yesterday, another upbeat UK PMI print - this time for the dominant services industry - gave the Pound a little more support. Gains against the dollar may have been limited to less than half a cent, but the pair has now added almost two cents from last week’s lows. Friday’s crunch talks amongst government ministers over Brexit are however looming and unless we see some convergence of opinion here - which seems unlikely - then any upside could well prove to be incredibly short lived.
At 11am BST this morning, Mark Carney will be speaking in Newcastle upon Tyne. With comments from the Bank of England governor at events away from the main rate setting agenda having been seized upon by markets in the past, it’s a case of watching for any clues over the Bank’s thinking regarding a rate hike at the August meeting. The run of good weather combined with England’s progression in the World Cup is likely to stoke inflation, potentially giving the required headroom to lift rates above 0.5% for the first time in almost a decade - adding further to the currency’s volatility in the short term.
ADP Payroll data at 1.15pm BST is coming in a day later than usual owing to yesterday’s public holiday in the US, but this will provide some clues over the outlook for tomorrow’s key non-farm payroll print and unemployment rate information. The US economy has had a good run but there are concerns mounting that the implications of reciprocal trade tariffs could start taking a toll. A notable decline in ADP print would raise fears that the unemployment rate will rise - it’s currently only showing frictional unemployment so can’t really go lower than the recent 3.8% - calling into question the Fed’s ability to keep hiking interest rates.
Keeping with that theme of US monetary policy, we have the latest FOMC meeting minutes set for publication this evening at 7pm BST. The last release showed a more hawkish than expected bias in the tone, reinforcing that idea of four rate hikes from the US this year, but given there are now pockets of weakness emerging in the economic data, the rhetoric could be dialled down. However if the pace of rate hikes are to slow, this needs to start being communicated to the markets imminently.
We saw a second consecutive day of - admittedly modest - gains for the pair during yesterday’s session. Mark Carney’s comments today could extend this, although political uncertainty has the potential to weigh on progress in anything beyond the very short term.
There was little to cheer during Wednesday’s session leaving the pair essentially flat, but some bumper German factory order data released early today has given the pair some notable upside. With the Fed meeting minutes and further Eurozone PMI releases on the table for later today, we could see these gains extended further in the short term.
Gains from yesterday’s UK PMI print have been reversed off the back of that German factory order data, continuing the generally directionless theme for the pair. UK political risk could however deliver meaningful weakness in the coming days.
Did you know…
Since the start of the year, the Swedish Kroner has been the worst performing of the G10 currencies against the US dollar. It lost almost 10% of its value over the period to July 1st with interest rates having languished at -0.5% for more than two years and concerns over the impact of a slowing housing market also weighing. It’s worth noting however that the currency has made an admirable recovery in recent days after the Riksbank - the country’s central bank - signalled earlier in the week that October or December may see the opportunity for interest rates to rise.