A -2.6% monthly GDP contraction weighed heavily on the pound as worries over the UK’s economic outlook picked up again.
The pound is largely on weak form this morning as markets await the latest UK data. The GBP/EUR exchange rate is down -0.1% to €1.1416, although the GBP/USD exchange rate has risen 0.1% to US $1.4067. GBP/AUD has tumbled -0.5% to AU$1.8258, GBP/NZD has dropped -0.6% to NZ$1.9381, and GBP/CAD has slipped to -0.2% to C$1.8111.
Read on to see what UK data released today could ensure that markets quickly get back into the swing of things after the long weekend…
What’s been happening?
What with the Easter Monday holiday yesterday, UK markets were closed and the domestic data calendar was empty, leaving pound Sterling at the mercy of market trends.
This benefited the GBP/EUR exchange rate, which had experienced a sharp decline last week. Traders were of the opinion that the pound had fallen too far, and spent much of yesterday buying it back up from its lows.
The pound’s performance against the US dollar was less dramatic, but the GBP/USD exchange rate still edged higher for much of the day.
Sterling was helped by a run of disappointing US data. The finalised Markit manufacturing PMI for March was trimmed lower to 55.6, while February’s construction spending figure showed a recovery of just 0.1% month-on-month compared to forecasts for 0.4% growth.
March’s ISM manufacturing index fell further than expected, dropping -1.5 points from 60.8 to 59.3.
The US dollar was given some reprieve, however, as the ISM prices paid index showed a sharp increase, against expectations of a decline, from 74.2 to 78.1.
This could indicate manufacturers are facing rising costs, which will eventually filter through the supply chain and inflate consumer prices, giving the Federal Reserve more reason to hike interest rates several times over the next three quarters.
What’s coming up?
The latest Markit UK manufacturing PMI is set for release shortly, with economists predicting that the index will fall from 55.2 to 54.7.
Markets often take the performance of the manufacturing PMI - the first of four such indices released in tight succession each month - as an indicator of the overall trend for that month.
A decline of half a point here could therefore see some selling of the pound on fears that the vital services index due later in the week will also have declined.
The bulk of today’s Eurozone data has largely been released, so the EUR may prove little threat to GBP without a helping hand in the form of poor results from this morning’s UK data.
The US data calendar is virtually empty today, but markets will be interested in the mid-afternoon speech from Federal Reserve official Neel Kashkari.
Regardless of the tone he strikes, US dollar reaction may be limited as another Federal Reserve official, Lael Brainard, is due to speak later this evening, so markets may remain on hold until after both speeches are out of the way.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)