- Pound (GBP) Loses Grip on Gains – Loses out against EUR, USD
- Risk-Sentiment Down – Safer EUR and USD beat out AUD and CAD
- Dairy Prices Down – New Zealand Unemployment also surprisingly high
- Forecast: US Non-Manufacturing ISM – Can it impress?
Pound Sterling (GBP) Slips against Majors as ‘Brexit’ Concerns Affect Economy
Sterling lost its footing against some of its major rivals, including the Euro and US Dollar, yesterday after Tuesday’s UK Manufacturing PMI printed a surprising contraction result of 49.2.
Initially, investors were undeterred by the poor score and supported the Pound as ‘Brexit’ bets continued to lighten. However, as news began to spread that the Manufacturing print had been largely influenced by fears in businesses that the UK could leave the EU in June’s referendum, investors once again entered ‘Brexit’ panic mode and the Pound was left floundering.
The score also marks the first shrink in the Manufacturing sector in 3 years. The Pound’s weakness may be set to continue as April’s Construction PMI printed well below expectations at 52.0.
US Dollar (USD) Buoyed on Risk-Off Appetite
The previously weak US Dollar was finally given the room to gain yesterday as Pound appeal dropped and investors looked towards ‘safe-haven’ currencies following poor news from risk-correlated nations.
While many investors saw the Euro as favourable to the US Dollar, the ‘Greenback’ was still favoured over the Pound as investors feared that this week’s upcoming UK PMI releases would show further real effects of ‘Brexit’ debates on hesitant UK businesses.
Wednesday sees more key US data in the form of ISM’s April Non-Manufacturing report. As the previous ISM report printed poorly, investors hope that this one will improve from 54.5 to 54.8 as forecast. If it fails to do so, the US Dollar could fall once more.
Euro (EUR) Rally Continues
The Pound to Euro exchange rate fell by around -100 pips during Tuesday’s session as investors became concerned with how ‘Brexit’ fears had effected Britain’s economy.
The shared currency also saw favour as appetite for risky currencies dropped in the foreign exchange market, with the relatively safe Euro strengthening in response.
Unfortunately, Eurozone news on Tuesday was not as positive. The European Commission released its newest economic forecast, which indicated that France, Italy, Spain and Portugal were now likely to miss EU budget targets in 2016 and 2017. The commission also started that the European Central Bank’s (ECB) easing methods were not enough to help the Eurozone recover. Wednesday’s final PMI scores were also negative, with Services printing at 53.1 and Composite printing at 53.0, both showing a marginal slowdown in growth as expected.
Australian Dollar (AUD) Reels from RBA Shock
The ‘Aussie’ Dollar reeled against many of its major rivals yesterday after a shock announcement from the Reserve Bank of Australia (RBA) revealed that key rates would be cut.
Following last week’s disappointing inflation reports, RBA policymakers responded to poor inflation outlooks and the Australian Dollar’s overvaluation by cutting the key interest rate from 2.00% to a record low 1.75%. While the reaction was not as bearish as how markets reacted to last week’s CPI, the ‘Aussie’ plummeted almost -400 pips against the Pound and appears unlikely to recover in the short term.
New Zealand Dollar (NZD) Dented by Poor News
The volatile GBP/NZD was allowed to advance slightly on Tuesday despite Britain’s poor PMI news, after a busy data day for New Zealand proved to be largely negative.
Investors initially took a wary stance on the ‘Kiwi’ as they anticipated a worsening unemployment rate. However the currency took a more definite hit after the Global Dairy Trade auction revealed that the prices of New Zealand’s most lucrative commodity had dropped by 1.4%.
New Zealand Unemployment was initially expected to worsen from 5.3% to 5.5%. Investors reeled when Q4 2015’s figure was revised to 5.4% and Q1’s figure scored a much worse 5.7%. Despite this, Q1’s employment change scored an impressive 2.0%, which may have muted NZD losses slightly.
Canadian Dollar (CAD) Slips as Oil Prices Fall
Prices of Canada’s most lucrative commodity fell yesterday and the Pound was able to rally steadily against the commodity-correlated ‘Loonie’ as a result.
While oil prices began to recover again on Wednesday’s session and the Canadian Dollar began to attempt a recovery, it seems unlikely that it will beat back the Pound’s gain of around 100 pips.
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