The first important UK data release of 2017 is due today from Markit Economics; it is expected to show that output in the factory sector decelerated minimally from 53.4 to 53.3 in December. If the report prints inline with expectations then it will probably have a limited impact on Sterling exchange rates, but any upside or downside surprises could boost or damage demand for the Pound.
The service sector PMI print on Thursday, which is predicted to see growth slow from 55.2 to 54.7, will probably cause more of an impact on GBP crosses because Britain’s dominant service industry accounts for over 70% of GDP.
The Pound to Euro exchange rate flatlined yesterday as most traders cherished their final day of the holiday season.
We could, however, see some movement in GBP/EUR this afternoon when German consumer price data is released. Tepid inflation has been a constant headache for European policymakers since the global crisis so it is possible that we could see the single currency rally if forecasts of a rise from 0.8% to 1.4% in German CPI prove accurate.
GBP/EUR is around ten cents lower than it was at the beginning of 2016 but some analysts are starting to predict a Sterling rebound in 2017 due to concerns surrounding the rise of nationalist sentiment in the currency bloc.
‘Cable’ softened by around half a cent yesterday in a move that many traders believe could be repeated many times in 2017.
With the UK economy projected to slow due to higher inflation and muted wage growth, and the US economy likely to benefit (in the short term) from President-elect Donald Trump’s reflationary spending plans, there is potential for the US Dollar to strengthen further versus the Pound this year.
However, Sterling is currently trading around two cents below what economists deem fair value against the ‘Greenback’ so there is also room for GBP/USD to rally, especially if the Federal Reserve does not manage to unleash the three rate hikes in 2017 that it recently projected.
The Pound to Canadian Dollar exchange rate tumbled -80 pips to hit its lowest level in almost two months yesterday. Traders bought into the commodity-sensitive ‘Loonie’ following the start of the New Year, which signalled the start of an agreement between OPEC and non-OPEC nations that aims to see production reduced by 1.8 million barrels per day in 2017. If the oil producers stick to the deal then it should drive prices higher, which is likely to benefit the ‘Loonie’, however, some analysts are skeptical about the deal because in the past it has been difficult to verify that some nations have adhered to agreed cuts.
A sturdy manufacturing report sent the Australian Dollar higher by around half a cent against the Pound yesterday. Smashing forecasts of 52.2, the AiG factory output index printed at 55.4, helping the risk-sensitive ‘Aussie’ attract buyers. However, the Federal Reserve’s hawkish outlook could spell trouble for the Antipodean currency later on in the year.
The New Zealand Dollar appreciated by around 130 pips versus Sterling yesterday and the ‘Kiwi’ could post further gains today if the latest New Zealand dairy auction sees prices rise.
09:30 GBP Markit UK PMI Manufacturing SA (DEC) Medium 53.3
13:00 EUR German Consumer Price Index (YoY) (DEC P) High 1.4%
15:00 USD ISM Manufacturing (DEC) High 53.7
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