Having enjoyed a significant upward surge following the Unionist victory in the Scottish independence referendum; Pound Sterling has softened considerably. This is as a result of trader profit buying, in the main, as the increase in demand following the referendum provided some attractive selling positions.
British economic data on Monday has been relatively mixed, but generally negative. Loans for House Purchase data was forecast to rise from the previous figure of 42715 to 42913, but the actual data showed a declination to 41588. Public Finances improved upon the previous figure of -7.2 billion, with the actual data reaching 1.6 billion, but failed to meet with the market consensus of 6.0 billion. Public Sector Net Borrowing was also negative having eclipsed the forecast figure of 10.2 billion, with the actual result printing at 10.9 billion. Public Sector Net Borrowing ex Interventions, however, failed to meet with the forecast figure of 11.8 billion with the actual result hitting 10.9 billion.
The Pound Sterling to US Dollar exchange rate is currently trending in the region of 1.6354. Movement is around -0.10% which is less declination than many other Sterling exchange rates. This can be attributed to a Federal Reserve official’s speech. Narayana Kocherlakota, President of the Federal Reserve of Minneapolis, accused policymakers of a lack of communication stating; ‘Although the FOMC has a 2 percent inflation objective over the long run, it has not specified any time frame for achieving that objective. This lack of specificity suggests that appropriate monetary policy might engender inflation that is far from the 2 percent target for years at a time’. Kocherlakota is essentially saying that there is uncertainty about the Fed’s commitment to its target.
It is possible that the Pound to US Dollar exchange rate will strengthen a little as the London session progresses ahead of the US Manufacturing PMI.
The Pound Sterling to Euro exchange rate is currently trending in the region of 1.2695. Movement is around -0.31% which is likely due to improved German data and European Central Bank President Mario Draghi’s promise to do whatever it takes to improve the Eurozone economy.
ECB President Mario Draghi suggested that large-scale purchases of government bonds remain an option, stating; ‘We stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary to further address risks of a too-prolonged period of low inflation’.
A better-than-expected set of German data has also helped boost a Euro uptrend. The German Composite PMI eclipsed the market consensus of a decline from 53.7 to 53.5, with the actual data rising to 54.0. The German Manufacturing PMI was slightly less impressive, however, having failed to meet with the forecast figure. Manufacturing declined from the previous figure of 51.4 to 50.3 which is dangerously close to the 50.0 level that separates growth from contraction. The German Services PMI was much more positive than that of the Manufacturing PMI. Having been forecast to decline from 54.9 to 54.6, the actual data showed a positive jump to 55.4.
Oliver Kolodseike, Economist at Markit said; ‘September’s flash PMI results paint a mixed picture of the health of the German economy at the end of the third quarter. Total private sector output continued to rise at an above average rate and employment growth picked up again, attributed in both cases to a strong service sector. However, new order growth slowed for a fourth month running and was the weakest in one year, suggesting that activity growth might slow in the near-term’.
Eurozone data has printed particularly negatively but while it hasn’t had too big an impact on the strength of the Euro, it has had an impact on the strength of the Pound. The Eurozone Services PMI failed to meet with the median market forecast of 53.0, with the actual data declining from the previous figure of 53.1 to 52.3. Similarly the Eurozone Manufacturing PMI printed lower-than-expected having failed to meet with the market consensus of a decline from 50.7 to 50.6, with the actual result hitting 50.5. The Eurozone Composite PMI followed suit having declined to 52.3 from 52.5 despite having been forecast to equal the previous figure.
Chris Williamson, Chief Economist at Markit said; ‘The survey paints a picture of ongoing malaise in the Eurozone economy. With growth of output and demand slowing, employment once again failed to show any meaningful increase. Such torpor meant prices continued to fall as firms fought for customers, which will inevitably heighten concerns that the region is facing deflation. For a central bank hoping that the economic data flow will start to improve, the ECB will be disappointed by the ongoing weakness of the PMI. The survey data suggest GDP is on course to grow by 0.3% at best in the third quarter, buoyed by a 0.4% expansion in Germany but dragged down by stagnation in France and sluggish growth in the rest of the region’.
The Pound Sterling to Australian Dollar exchange rate is currently trending in the region of 1.8360. Movement is around -0.43% which is as a result of Chinese data vastly improving commodity prices and risk sentiment.
Tuesday started out positively for the Australian Dollar after the weekly consumer confidence print showed a positive increase. The Roy Morgan Weekly Consumer Confidence Report rose from 111.3 to 112.9.
The main reason for the ‘Aussie’ (AUD) Dollar surge can be attributed to better-than-anticipated Chinese data. The HSBC Manufacturing PMI was expected to decline from the previous figure of 50.2 to 50.0, the level which separates growth from contraction. The actual data, however, increased to 50.5.
Chinese factory output not only has an influence over the ‘Aussie’ but massively affects commodity prices. Brent crude oil has rebounded from a weekly low which signals increased demand from China, the world’s second-biggest oil consumer. ‘The PMI data reduces concern in the market that crude demand in China will be affected by slowing growth,’ said Hong Sung Ki, an analyst at Samsung Futures Inc. in Seoul. ‘For today, this will be the supporting reason for higher prices’.
Soybeans have also moved away from a 2010 low as investors weighed the outlook for demand from China. ‘There’s a lot of mixed messages coming in on what the underlying demand is going to be from China,’ Wayne Gordon, a commodity analyst at UBS AG in Singapore, said by phone today. ‘That’s key because we really have the soybean crop set to be harvested in the U.S. and the Brazilians are increasing area’.
Sterling is forecast to remain in a similar position against the majority of its competitors given that there are no more British domestic data publications due on Tuesday. There is the potential for dramatic changes, however, if the US manufacturing data fails to meet with the forecast figure.
