A bout of Sterling selling during the Asia-Pacific session took the Pound lower against most of its currency rivals earlier this morning. There did not appear to be any direct stimulus behind the moves, rather it seems that investors were looking to lock-in profits from Sterling’s relatively strong position on the currency market.
British data showed on Friday that the Construction Sector slowed slightly from a 6-year high of 62.6 to a still-very-optimistic 62.1 during December. The report contained evidence that sub indexes for house building and commercial projects remained at levels not seen for multiple years, suggesting that Construction output is likely to stay strong in the New Year.
Accounting for all available data in Q4, it is thought that the UK economy grew faster than the 0.8% registered in Q3. If this morning’s Service Sector PMI report prints optimistically – it is predicted to rise from 60.0 to 60.3 – then it is likely to boost economic confidence, and possibly bolster demand for the Pound.
Optimism towards Sterling in the second half of 2013 was largely driven by speculation that stronger GDP growth and falling Unemployment would persuade the Bank of England to raise interest rates earlier than they had originally forecast. However, enthusiasm began to wane slightly on Friday as markets digested the possibility that the BoE could modify its forward guidance programme.
The Central Bank currently intends to hike rates when the Unemployment Rate falls to 7.0% but, because the jobless total has fallen faster-than-anticipated in recent months, some economists feel that the BoE will opt to push the Unemployment threshold down to 6.5%.
GBP/USD
Sterling sunk by over half a cent against the US Dollar earlier this morning, reaching a 10-day low of 1.6353. Having fallen through technical support at 1.6440 on Friday, it is difficult to see GBP/USD rising back above that level during today’s session unless the UK Services report throws up an unexpectedly strong result. US data is likely to support the ‘Greenback’ with the ISM Non-Manufacturing report predicted to rise from 53.9 to 54.5.
Commodity currencies
The strong downward GBP/USD moves had a knock-on effect on other Sterling pairs, sending the Pound to Canadian Dollar exchange rate (GBP/CAD) lower by around -0.9 cents and shaving off around -0.4 cents from GBP/EUR.
However, Sterling remained slightly better off against the Australian Dollar and the New Zealand Dollar due to a softer-than-anticipated HSBC Chinese Services PMI result of 50.9 – down from 52.5 the previous month. The disappointing Chinese report damaged demand for the ‘Aussie’ and the ‘Kiwi’ because it was seen to worsen the trade outlook between China and the two Antipodean nations.
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