Good Morning All;
we’ll see now a new weekly analysis of Currency Markets.
The pound was under pressure at the start and end of the week as markets looked to final July PMI figures and as the Bank of England announced a larger stimulus package than markets had expected. The dollar strengthened on Friday as US NonFarms surprised to the upside. Releases to note on an overall quieter calendar this week include Manufacturing and Industrial Production from the UK, GDP and Industrial Production from the Eurozone, and Retail Sales and the Producer Price Index from the US.
The pound came under renewed pressure last week, ending the week down approximately 0.55% against the euro and 1.25% against the dollar. A downwards revision to Manufacturing PMI from July’s flash figure of 49.1 to 48.2, the lowest since early 2013, weighed on Monday. Construction PMI was down only 0.1 points from 46.0 in June to 45.9 in July and Services PMI was unrevised from the flash estimate of 47.4, offering the pound some relief ahead of Thursday’s Bank of England meeting. Both Construction and Services PMIs were at their lowest levels since 2009, while the latter index had its sharpest drop on record from June to July.
The pound tumbled on Thursday as the BoE announced not only a widely expected interest rate cut from 0.50% to a new record low of 0.25%, but also expanded QE, both in terms of the size of its asset purchase programme and the addition of the purchasing of corporate bonds, and launched a new Term Funding Scheme. The BoE also said there was scope for any of these measures to be expanded and left the door open for another interest rate cut this year, although it sees the lower bound as near but above zero. The BoE cut its central 2017 economic growth forecast from 2.3% to 0.8%. Corporate and government bond yields fell to new record lows on the BoE’s announcements.
The economic calendar is quieter this week. Tuesday is the key data day, with Industrial and Manufacturing Production out. Manufacturing Production is expected to hold steady at 0.0% after a 0.5% decline in May, while Industrial Production is expected to fall 0.1% after a steeper 0.5% decline in May. Markets will also keep an eye on NIESR GDP estimate for the three months ending in July and the Goods Trade Balance, both of which tend to have a more muted impact.
The economic calendar had few items of major impact last week. Final Manufacturing and Services PMI figures were largely in line with expectations. The French Manufacturing Index remains below the key 50.0 mark, indicating sector contraction. Spanish Unemployment Change fell more than expected, down 84.0K, slightly lower than the previous month’s 124.3K drop. German Factory Orders disappointed, unexpectedly contracting 0.4%. Eurozone Retail Sales were unchanged from the previous month as expected, at 0.0%, and the ECB’s Economic Bulletin had little impact on rates.
Releases of note this week include GDP and Industrial Production figures. Preliminary German GDP is expected to show that growth slowed to 0.3% from 0.7%, while the Flash Eurozone GDP is expected to be unchanged from the Preliminary Flash estimate of 0.3%, a slowdown from Q1’s 0.6% growth. Annualised growth is also expected to remain unchanged from initial estimates at 1.6%. Industrial Production in the Eurozone is forecast to pick up from a 1.2% decline to 0.6% growth in June.
The dollar ended the week stronger against both the pound and the euro last week, in particular receiving a boost from Friday’s above-forecast jobs report. Non-Farm Employment Change was significantly higher-than-expected at 255K, compared to market expectations of 180K. There were upwards revisions to the figures in June, from 287K to 292K, and in May, from 11K to 24K. The Unemployment Rate was unchanged at 4.9%, and Average Hourly Earnings rose 0.3% month-on-month and 2.6% year-on-year. The dollar strengthened around 1.0% against the euro and 1.2% against the pound on the releases. Other highlights of the week included greater-than-expected drops in both the Manufacturing and Non-Manufacturing PMI, although both indices remained clear of the 50.0 mark, indicating sector expansion. Personal Spending rose 0.4% while Personal Income rose 0.2%, the same rate as the previous month, and Factory Orders m/m fell 1.5%, less than expected.
There are several releases out from the US this week. Of particular interest will be Friday’s Retail Sales, which are expected to increase at a slower pace after June’s unexpected jump of 0.7% in Core Retail Sales and 0.6% overall, and Producer Price Index. Last month, the index rose more than expected, to 0.5%, and Core CPI rose to 0.4%. Lower figures this month could weigh on the dollar as markets look for signs that inflation is on track to return to the Fed’s target rate of 2%. PPI is an indicator of consumer inflation. Other releases to keep an eye on earlier in the week include weekly Unemployment Claims and Import Prices m/m.
Friendly Week ‘n A Great Middle August 2016