The Pound was treated to a bumper December manufacturing PMI report yesterday but, despite the outperforming result, Sterling was unable to post gains versus most of the majors.
Markit Economics reported that manufacturing output smashed forecasts of 53.3 with a 30-month high of 56.1. Increased demand from home and abroad boosted firms’ order books and employment picked up as a result. Inflation, in terms of both input and output costs, remains close to the highest levels witnessed in the survey’s history, however, price pressures have eased from October’s highs.
Today sees UK construction data released, but most traders will be waiting until Thursday’s service sector PMI for signs of how well the wider economy performed in the final month of December.
The Pound to Euro exchange rate touched a two-week high yesterday morning in response to the upbeat British manufacturing print.
However, Sterling’s one-cent gains were trimmed in half during the afternoon as decent German inflation figures bolstered the appeal of the single currency. In the second big upside shock of 2017, it was reported that German CPI jumped from 0.8% to 1.7% in December. The score was driven by higher oil prices and marked a high not seen since July 2013. The three-and-a-half-year high print bodes well for this morning’s Eurozone CPI print, which is anticipated to show a sturdy jump in price pressures from 0.6% to 1.0%. GBP/EUR could potentially fall following a strong Eurozone inflation reading.
Driven by a sturdy factory output result of its own, the US Dollar rallied to its highest level of the year against the Pound yesterday.
The US ISM manufacturing report beat expectations of 53.8 with a score of 54.7, while construction spending jumped to its highest level in over ten years. The robust data set pushed the US Dollar’s trade-weighted index back up to 14-year highs and this included posting gains versus Sterling.
The Federal Reserve is due to release the minutes from its December meeting this afternoon. The Fed raised interest rates last month and projected a further three hikes in 2017, so it seems likely that the meeting minutes will convey a fairly hawkish message, which could easily give the Greenback’ another boost.
The Pound to Canadian Dollar exchange rate lost out on around half a cent yesterday, reaching its lowest level since the start of November as rising oil prices continued to buoy demand for the ‘Loonie’. Crude struck an 18-month high yesterday as traders reacted to the beginning of 2017 and the start of important OPEC and non-OPEC production cuts agreed late in 2016.
Risk appetite in the Asia-Pacific region was boosted yesterday by an outperforming Chinese manufacturing report, which printed at 51.9, a full point higher than forecasts of 50.9. The pleasant surprise boosted demand in the region, which in turn led to a rally in favour of the risk-sensitive ‘Aussie’ Dollar. GBP/AUD weakened by around a cent.
The Pound to New Zealand Dollar yo-yoed yesterday. The risk-correlated ‘Kiwi’ initially rallied in response to the robust Chinese manufacturing PMI, however, sanguine British factory figures and a disappointing dairy auction result allowed GBP/NZD to recover its losses by the end of play. The latest Global Dairy Trade auction saw dairy prices fall -3.9%, with whole milk powder sliding -7.7%. Because dairy is New Zealand’s most lucrative export the ‘Kiwi’ Dollar lost a little bit of support following the figures as growth and profit projections were adjusted.
09:30 GBP Markit/CIPS UK Construction PMI (DEC) Medium 52.6
09:30 GBP Mortgage Approvals (NOV) Medium 68.7k
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (DEC) High 1.0%
19:00 USD U.S. Fed Releases Minutes from Dec. 13-14 FOMC Meeting Medium
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