- Patrick Maflin
Pound Sterling (GBP)
The Pound continued pushing higher on Friday, advancing against many major currencies on the strength of a week of better-than-expected data, including Friday’s Construction PMI print. Construction was expected to score contraction of 46.5 after July’s 45.9, but the figure instead came in at 49.2.
However, as Britain’s Construction sector has struggled for multiple months now, this failed to cheer investors considerably. Markit’s report also indicated that many had cited the Brexit as a source of concern. Despite this, the realisation that all the week’s UK figures had beaten expectations helped Sterling climb at the end of the week.
The Pound was limp during Monday’s Asian session, but upon the publication of Britain’s August Services PMI it advanced across the board. After July’s contraction of 47.4, forecasts took a more optimistic 50.0 in line with last week’s better-than-expected PMIs. However, the final result of 52.9 was well above expectations, bringing the Composite print up from July’s 47.5 to 53.6 and cheering UK investors. As a result, Sterling could continue its advance this week unless Brexit news or data shocks markets to the downside.
US Dollar (USD)
The Pound to US Dollar exchange rate surged on Friday as the US Dollar plummeted on the back of a week of disappointing August ecostat results. The most influential US figures of the week, ISM’s Manufacturing score and the August Non-Farm Payroll report, both came in well below expectations.
Friday’s highly anticipated Non-Farm Payroll indicated that new job creation had slowed from 275k to 151k in August, despite a figure of 180k being expected. The US Dollar initially plummeted to new lows on the news as investors were down on September Federal Reserve rate hike bets. However, as a December rate hike still seemed possible, the US Dollar recovered slightly as investors bought the currency from its cheapest levels. By the end of the day GBP/USD’s advances had been halved as the Dollar recovered.
On Monday, US Dollar trade will be relatively quiet amid a lack of data publications as the US observes the Labour Day holiday.
The Pound to Euro exchange rate improved by over half a cent on Friday as a week of solid British data helped investors entertain the possibility that the UK economy would at least hold steady between the Brexit vote and the activation of Article 50 itself.
The Euro, on the other hand, was weakened by speculation that the European Central Bank (ECB) could consider expanding monetary stimulus policies in this week’s upcoming meeting. Last week’s unemployment and inflation figures were the latest worries for investors, as inflation remained ultra-low despite hopes of improvement and unemployment also failed to improve.
Most analysts believe that the ECB will remain in wait and see mode at its meeting this week, but if data continues to disappoint it is unlikely the Euro will strengthen considerably. Monday’s session started the Euro off badly as Eurozone Services and Composite PMI prints came in below expectations, with scores of 52.8 and 52.9 respectively largely due to a surprising drop in German services.
Australian Dollar (AUD)
The Pound to Australian Dollar exchange rate fluctuated widely on Friday afternoon as investors reacted to the day’s US Non-Farm Payroll report. However, GBP/AUD ultimately ended the day near its opening levels.
The Australian Dollar strengthened more solidly during Monday’s Asian session despite mixed Australian data. The AiG’s latest Service index report followed July’s score of 53.9 with a low score of 45.0. However, due to an unexpected improvement in iron ore prices, the ‘Aussie’ strengthened.
New Zealand Dollar (NZD)
The Pound to New Zealand Dollar exchange rate gained almost half a cent on Friday, but struggled to capitalise and hold its best levels as poor US data led to some investors seeking out riskier, high-yield currencies like the New Zealand Dollar.
A strong New Zealand commodity price report from ANZ helped improve the appeal of risky currencies further during Monday’s Asian session. As a result of this steady return to risk-on movement, the ‘Kiwi’ could make a more bullish run later in the week if Tuesday’s dairy auction impresses with higher prices.
Canadian Dollar (CAD)
The Canadian Dollar strengthened across the board on Friday, causing GBP/CAD to lose over a cent in value as investors flocked to the US Dollar’s neighbouring currency following a worse-than-expected US Non-Farm Payroll report.
The ‘Loonie’ was in a more favourable position than its other commodity-correlated peers on Friday due to a slew of statements from oil producing nations about the possibility of an oil production freeze. However, oil prices remained mixed on Monday, dropping during the Asian session but recovering during the European session. Due to this and a general increase in demand for risk-correlated currencies, the Canadian Dollar was able to hold its ground.
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