UK
Sterling strength continues to be dictated by investor appetite or aversion to risk. Against the euro the pound traded between 1.2751 and 1.2666 yesterday, ending the European session at 1.2675 and more than 1.5% down on mid-July’s highs. Volatility suggests that investors are reluctant to make long term moves, focussing rather on the short term.Yesterday morning saw the release of UK manufacturing PMI which missed expectations of 48.6, with 45.4 showing further contraction in the sector and representing a three year low for the Index.
David Noble, CEO of the Chartered Institute of Purchasing and Supply, explained these disappointing manufacturing figures as the result of ‘A perfect storm of wet weather and weak confidence in the UK’.
In the UK the BoE is not expected to make changes to the target asset purchase of £375Bn or the Bank rate of 0.50%, meaning we will have to wait until next week’s Inflation Report and press conference for insights into the MPC’s outlook.
Sterling continued to lose ground over the course of the day as markets price-in what could be the first signs of a coordinated set of measures from the ECB and Fed today. If sentiment on both sides of the Atlantic is considered hollow then we could see greater volatility over the course of the FOMC meeting and after the ECB press conference at 13:30.
GBP/USD mirrored sterling’s losses against the single currency, beginning the morning at 1.5691 and closing the day at 1.5586. In the lead up to the European open today GBP/USD trades at 1.5553.
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WORLDWIDE
Commentators acknowledge the significance of central bank meetings in both the US and Eurozone, and yesterday’s trading saw EUR/USD stay with a narrow 1.2279 – 1.2336 range. Mario Draghi has pledged to do ‘whatever it takes’ to safe guard the euro, and speculators will be out to punish the Eurozone should his sentiments fall short of expectations.
The Federal Reserve signalled more strongly it will take new steps as needed to boost the economy. After the European close USD rallied to 1.5530 against the pound and from 1.2308 to 1.2218 against the euro.
US Treasury Secretary Timothy Geithner believes the ECB and the EU’s bailout fund could be reapplied to help recapitalise weak European banks and lower sovereign borrowing costs in favour of ailing economies that need time to implement overhauls. Geithner urges immediate short-term support for Italy and Spain, and belief in the ECB’s ability to do this may have fuelled the USD rally.
US ADP non-Farm Employment Change came in better than expected at 13:15. The number of employed during the previous month was 163k as opposed to 121k forecasted. Whilst ADP provides payroll services to many US corporations, pundits are still watching closely during the US earnings season.
Yesterday morning saw manufacturing PMI data for Spain and Italy broadly inline with expectations. US ISM manufacturing disappointed, posting 49.8; 50.3 had been the forecast in the face of June’s 49.7 figure.
Spanish unemployment posted at -27.8k. This is a contraction of 0.6%.
S&P have downgraded Cyprus’s credit rating again and placed the island nation on negative watch because of the significant exposure it faces to the Greek banking sector.
Early this morning AUD retail sales figures came in better than expected, and greater than the previous post. The sector expanded 1% instead of just 0.6%. Also the Australian trade balance was fractionally positive at 0.01B.
