• UK Construction PMI falters – below expectations of 49.9.
• Euro-zone PPI increases – surprise rise to 2.7%.
• “No Bailout this weekend” – says Spanish PM Rajoy.
• RBA reduce rates – benchmark Australian interest rate down to 3.25%.
Construction activity in the UK during August missed analysts’ expectations of a rise to 49.9, and posted a disappointing score of 49.5. The construction sector was let down by declining new work orders amid the weakest outlook for over 4 years. Yesterday’s data added to the case put forward by Monday’s soft Manufacturing PMI result that UK economic output may not have grown by as much as anticipated during the third quarter.
The Construction PMI result was accompanied by a larger-than-expected decline in Nationwide House Prices, of -1.4%, which left Sterling in a sticky situation.
Sterling declined by around 0.4 cents against the Euro yesterday morning as investors reacted to the soft UK Construction figures and a surprise rise in Eurozone Producer Price Index.
The prices charged by manufacturers in the 17-nation bloc rose 2.7% on an annualised basis during August, rebounding from July’s weak print of 1.6%. The rise, which was more pronounced than expected, is likely to cause inflationary pressures in the currency bloc and reduces the likelihood of a European Central Bank interest rate cut at tomorrow’s announcement.
Spanish 10-year bond yields dropped by 12 basis points yesterday as rumours surfaced that Spain was ready to ask for a bailout. However that suggestion was quickly quashed as Spanish Prime Minister Mariano Rajoy explicitly ruled out the request of a sovereign bailout this weekend, whilst speaking at the Spanish Senate during the 5th Presidential Conference.
The Pound bounced up and down in a 0.4 cent range yesterday against the US Dollar as technical resistance around the 1.6160 mark halted Sterling’s rally. The British Chamber of Commerce issued a statement warning that the “economy has been stagnant for too long and urgent measures are needed to enable businesses to drive a sustainable recovery.” However, despite this warning, the Bank of England are widely expected to leave interest rates on hold and refrain from boosting their current quantitative easing programme tomorrow. GBP/USD could recommence its upward drive later this week if the BoE choose to explicitly talk down the possibility of additional stimulus measures.
Sterling impressed against the Canadian Dollar yesterday as the slightly better-than-expected Eurozone PPI print reduced the chances of an ECB rate cut at tomorrow’s meeting, and subsequently dampened investors’ appetite for risk. This led to a 0.3 cent daily gain for the Pound despite the UK’s soft Construction Purchasing Managers Index result.
The Pound appreciated by 0.9 cents against the Australian Dollar within 15 minutes of the Reserve Bank of Australia’s Interest Rate Decision early yesterday morning. The RBA decided to cut their benchmark interest rate from 3.50% to 3.25%, citing contraction in Europe, modest output in the US, and ‘uncertainty’ about the near-term prospects of the Chinese economy.
Australia’s mining boon has primarily been fuelled by the fast-improving Chinese economy, and with this in mind it is particularly worrying for ‘Aussie’ Dollar traders to see Chinese forecasts fall, which explains the sharp Australian Dollar decline against the Pound.
New Zealand Dollar
The New Zealand Dollar benefitted from its position as a regional alternative to the Australian Dollar following the RBA rate cut yesterday. The ‘Kiwi’ Dollar also found itself supported against the Pound as New Zealand commodity prices posted their strongest monthly gain in 1.5 years during September. Skim milk powder and aluminium headlined the increase, both rising by 11%, as GBP/NZD declined by around half a cent.
Data Released Today
09:00 EUR Euro-Zone Purchasing Manager Index Services (SEP F)
09:30 GBP Purchasing Manager Index Services (SEP)
10:00 EUR Euro-Zone Retail Sales (YoY) (AUG)
15:00 USD ISM Non-Manufacutring Composite (SEP)
- Pound to Euro, US Dollar exchange rate: The Pound was able to benefit from the Bank of England’s decision
- Pound to Euro, US Dollar exchange rate: The Bank of England surprised absolutely nobody yesterday as they kept their benchmark interest rate at 0.5%
- The Reserve Bank of Australia’s minutes of its September policy meeting knocked the wind out of the Australian Dollar’s sails
- Pound to Euro, US Dollar exchange rate: Another day another Dollar for Sterling yesterday as the Pound appreciated against all of the major currencies
- Australian Dollar – The Reserve Bank of Australia unexpectedly raised interest rates