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February 2016

Daily Currency Insight

Published: Thursday 04 February 2016

  • BoE Super Thursday – no fireworks expected
  • USD weakens on the back of oil surge
  • Better service numbers props up the Pound
Improved data from the UK helped the Pound to burst through recent trading ranges yesterday. The service sector Purchasing Managers index rose to 55.6 last month, slightly above December reading of 55.5. Any figure above 50 signifies growth in the sector. The service sector accounts for more than 75% of the UK economy so this figure is always very closely watched. Taken together the 3 PMI readings now suggest that growth in the first quarter could be around 0.6% despite the issues in Asia. The Pound managed to break above 1.4600 on the news and has managed to consolidate around there as we open this morning.
The Dollar weakened across the board yesterday as traders, once more, pared back expectations of an interest rate hike for the Federal Reserve. The catalyst yesterday was weaker than expected ISM data which came in at 53.5 against an expectation of 55.1. The employment component fell to 52.1 from 56.3 last month indicating that perhaps tomorrow Non-Farm payrolls may be set to disappoint. Just to add fuel to the fire, there was more negative rhetoric from New York Fed President Dudley who stated that the stronger Dollar could harm the US economy and that the economic landscape was much worse than at the time of the December meeting. The Fed have stated via the dotted graph that rates will rise by 100 basis points this year however markets are only pricing in one more rise of 25 basis points. A weaker Non-Farm payroll tomorrow could be the final nail to the coffin.
The focus this afternoon will undoubtedly be in the UK as we await the January inflation report, the results of the latest monetary policy committee meeting and there is also a press conference from Governor Mark Carney. "Super Thursday" as this has become known generally sets the tone for near term direction of the Pound. Minutes from the January meeting reiterated the dovish message and lower oil prices means that inflation is still likely to undershoot. Mr Carney has been fairly cautious since the turn of the year and most expect more of the same later today which may put a cap on the recent rally. 

FX Research by Ricky Nelson

Daily Currency Analysis with Zeta Webber

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