- Chinese Purchasing Managers’ Index (PMI) drops
- USD weaker on disappointing growth data
- PMI indices abound this week
- Bank of England (BoE) – no change expected, but voting patter will set mood for Sterling
By David Johnson
Uninspiring US economic growth data and soft inflation figures knocked the US Dollar on Friday and the USD remains weak this morning. If US Dollar traders need more information to work on, they are being spoiled this week. A swathe of purchasing managers indices (PMIs) will be complimented by personal consumption and expenditure data and the monthly employment data on Friday. However, the intermittent nature of strong US data is making people question whether the Federal Reserve has the mandate to start raising interest rates or cutting the Quantitative Easing (QE) bond holdings and that is making the USD wobble against the Pound, Euro and others. The fact that oil prices have hit a new two year high is also weakening the USD.
We started this week with a below par Chinese manufacturing PMI. That had a knock on effect with the currencies of the countries that supply China and we saw initial weakness in both the Australian and New Zealand Dollars. It makes any kind of change unlikely when the Reserve Bank of Australia (RBA) meets overnight tonight (UK time) and we may well see repercussions in the Australian trade data, due for release on Thursday. This may be a week of Aussie Dollar weakness as a result.
The Euro is providing stronger showing of late, as Eurozone data improves from a very low ebb. Sterling is failing to break above €1.12 and, because of the reasons shown above, the Euro-US Dollar rate is the highest we have seen since January 2015. As far as the EUR-USD rate is concerned, $1.20 is the next barrier and that is only psychological. Technically, $1.25 is the real biggie.
For the Sterling – Euro rate, this week’s barrage of PMI indices and various other data will cause volatility, but it will take something more substantial to get Sterling back in an upward trend from its current sideways action. The Bank of England is not expected to change anything on the bond ownership or interest rate front this week, but a more united vote for ‘on hold’ would give the Pound a fillip. If Sterling can bounce, €1.13 is the technical target. If however, Sterling drops through €1.11, there is not a lot of support until we get to €1.10 and maybe €1.09. Risk protection for Euro buyers is certainly worth a thought.
As well as the US employment data, we will get Canadian data on Friday. The Sterling –Canadian Dollar rate has been tumbling since mid-May and that contrasts with the GBP-USD rate, which has headed in the other direction. The GBP-CAD rate may have to get to C$1.59 before it finds enough buyers to allow the Pound to recover, but it probably rests with the BoE to trigger that… or not, as the case may be.
It is going to be a very busy week in the forex market and today is the last day of the month, so this could be the busiest of all. Hold on to your hats!
John ran a small farm in Devon. An inspector for the Department for Employment was visiting because it had been claimed that John wasn’t paying his employees enough.
“I need a list of your employees, the hours they work and how much you pay them,” demanded the inspector.
“Well,” replied John, “There's my farm hand who's been with me for three years. I pay him £500 a week, plus free room and board. The cook has been here for 18 months, and I pay her £300 a week, plus free room and board. Then there's the half-wit who works about 18 hours every day and does about 90% of all the work around here. He makes about £10 per week, pays his own room and board and I buy him a bottle of Whisky every fourth Saturday.”
“That's the guy I want to talk to, the half-wit,” says the inspector.
“You’re talking to him,” says John.