Liquidity returns to normal volumes with the Labour Day holidays behind us. It will be a busy four day week for the UK with key events on both sides of the pond. The UK General Election is by far the greatest risk to Sterling’s performance with press coverage at an all time high. Meanwhile the rest of the world will be keeping a close eye on both US data and Fed Chair Yellen for further clues on the timing of the interest rate “lift off”. The latest rhetoric from the FOMC has changed many commentators views from a June to September countdown. The employment data this week should help to clarify this picture.
The UK returns to the market with the heavy focus on the General Election on Thursday. The UK’s Construction PMI will take a back seat to the election newswire that follows. After last week’s Dollar retracement the focus will be on today's service sector data.
The service sector from the UK and the Eurozone comes under scrutiny today. After the latest BoE minutes where two members revealed they were close to voting for a hike, meaningful data will be examined with care. The service sector in the UK accounts for around 70 percent of economic activity. Likewise in the US, the hawks will keep a close eye on the ADP employment report and FOMC Chair Yellen to see if there is any hope of the June “lift off”.
By far the greatest event risk to both UK importers and exporters; Election Day. Due to the complexities and the likelihood of a hung parliament this could be drawn out for days or even weeks before we get a conclusion. Meanwhile, the weekly jobless claims will be monitored for further developments and clues on the health of the US economy.
Sterling performance and path will be very much dependent on the outcome of UK General Election. As stated earlier, volatility could be prolonged if there is no real resolution. However, focus will turn back to the US with the release of the keenly watched non-farm payrolls. Last month’s reading was dismal and bucked the trend enough for the FOMC to change the rhetoric to a less hawkish tone at their recent meeting. The market will be keen to see if last month’s number was an anomaly or if the Fed were right to exercise some caution.