The Pound’s brief reprieve from headwinds seems soon to end as market attention remains fixed on weak economic readings and political uncertainty. Investors are holding off for the next Prime Minister, and an indication of the future path of Brexit. UK Construction PMI dropped into contraction territory at 48.6 points, a 14-month low and follows Monday’s poor manufacturing data. The 1922 Committee tightened the rules for the Conservative party leadership race, and speculation of a Boris Johnson win grew stronger. Donald Trump’s state visit generated some controversy regarding the NHS in relation to a post-brexit US/UK trade deal, but the Pound clawed back half a cent on the Dollar on the promise of more trade.
The Bank of England’s Deputy Governor Dave Ramsden’s comments this morning will be influential but UK Services PMI’s will be key to the Pound’s immediate future and is forecast to rise modestly to 50.6 from 50.4 in April. The Pound opens at 1.1280 on the Euro and 1.2700 on the Dollar.
The Dollar Index made a minor recovery following a drop to its lowest level in seven weeks against it’s peers. The US fighting trade wars on several fronts has left market sentiment fragile and ISM manufacturing PMI dropped to its lowest reading since October 2016 added to the perception of strain building in the US economy. Fed Chairman, Jerome Powell stated that the Fed would ‘act as appropriate’ to sustain expansion, and signalled an openness to rate cuts if needed. Fed Vice Chair Richard Clarida echoed the rhetoric when speaking afterwards, and the Fed’s James Bullard said that a rate cut might be “warranted soon,” and that current interest rates might be “inappropriately high”. The Euro failed to break through the 1.1277 mark on the Dollar, closing at 1.1251.
Today’s ADP data and the ISM non-manufacturing data could alleviate fears of deeper economic slowdown if significantly above forecasts.
Following a positive day yesterday for the single currency, Eurozone Inflation data disappointed prompting some profit-taking by selling Euros. The CPI figures dropped to 1.2% growth in May, down from 1.7% last month and core CPI showed 0.8% growth, below consensus forecasts. The ECB meeting tomorrow is unlikely to show any major shift in monetary policy.
German services PMI, Eurozone composite PMI’s and Euro retail sales figures will be the key Euro data today.
Posted in Daily Market News on Jun 5 2019