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February

Sterling shrugs off slower UK manufacturing in January

Published: Friday 02 February 2018

  • Sterling still strong
  • All eyes on key US economic data
  • Euro recovers on positive data
By Zafer Deniz

Sterling still strong
 
Sterling rallied yesterday, despite figures released showing that manufacturing activity slowed in the month of January with the Purchasing Managers’ Index (PMI) dipping to 55.3 from 56.2. This is the second monthly decline after hitting a record high in November, but growth continues for the UK manufacturing sector; and overall the index remains very strong.
 
The Nationwide House Price Index also rose 0.6%, which was much stronger than expected and helped to drive the year over year rate to 3.2% from 2.6%. Today’s Construction Sector PMI report should not have a significant impact on the Pound. Instead, the market's appetite for US Dollars and reaction to the all-important Non-Farm Payroll (NFP) results from the US should determine how Sterling trades today. Which leads us nicely onto the US Dollar…
 
All eyes on key US economic data
 
Today is a big day in terms of the US NFP figures. Economists are looking for 180,000 jobs to be created and that's the minimum they anticipate, because jobs growth could easily close in or exceed 200,000. However, that's not what everyone will be watching today. Instead, the focus will be on US wage growth and the unemployment rate. The unemployment rate is expected to remain unchanged but wage growth could slow after rising two months in a row. In an environment of US Dollar weakness, where investors are looking for any excuse to drive the currency lower, softer wage growth, combined with an uptick in the unemployment rate, would be disastrous for the US Dollar, regardless of the level of job growth. While NFP figures could beat expectations, reports suggest that the overall data will not live up to expectations
 
Euro recovers on positive data
 
The single currency rose yesterday as there was no revision to the Eurozone Manufacturing PMI, but there's growing evidence of hawkishness within European Central Bank (ECB) ranks. Yesterday, there were reports that some ECB officials want to give investors clearer guidance on how long interest rates will remain unchanged beyond their official view of "well past" the end of asset purchases. ECB member Nowotny also called for the central bank to consider ending their bond buying program and said that by September, they'll decide what to do with their asset purchase programme. All of these headlines confirm that the ECB is comfortable with EUR-USD at 1.25.
One-liners
 
I had a dream that someone was shouting “On Your Marks… Get Set….”.  I woke up with a bit of a start.
 
Got a new mousemat today.  Hope he uses it and stops leaving little footprints everywhere.
 
I used the return portion of my train ticket today.  That took me back.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 09:30 UK: Construction Purchasing Managers' Index 52.2 52.0
EUR 10:00 EU: Producer Price Index 0.6% 0.3%
USD 13:30 US: Average Hourly Earnings 0.3% 0.2%
USD 13:30 US: Non-Farm Employment Change 148k 181k
USD 13:30 US: Unemployment Rate 4.1% 4.1%
USD 15:00 US: Revised UoM Consumer Sentiment 94.4 95.0

For more information, infographics and the latest currency insights, visit www.halofinancial.com/news