Pound Holds Steady Ahead of BoE Interest Rate Decision

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Headlines

  • Disappointing Manufacturing PMI Dented Australian Dollar Appeal – Widened trade surplus could support AUD exchange rates
  • Pound Movement Muted as Markets Braced for BoE Rate Decision – Odds continue to favour imminent interest rate hike
  • Eurozone Economy Starts Third Quarter on Weaker Footing – Euro struggles to find support
  • New Zealand Unemployment Rate Showed Surprise Increase – NZD exchange rates saw limited downside



Australian Dollar

July’s Australian manufacturing PMI failed to offer any support to AUD exchange rates yesterday as the index dipped from 57.4 to 52.0. While the sector remained in a solid state of growth this still represents a significant loss of momentum on the month, leaving the Australian Dollar vulnerable to fresh losses. As market jitters mounted ahead of the latest Federal Reserve policy announcement the mood towards the ‘Aussie’ continued to sour.

If the trade surplus widens in line with forecasts in June, however, the Australian Dollar could find renewed support today.

Sterling

The latest UK manufacturing PMI did not paint the most encouraging picture for investors, with sector growth falling to a three-month low as economic pressures continued to mount. This left the Pound on a slightly weaker footing against its rivals, underlining worries over the outlook of the domestic economy. Even so, as the manufacturing sector only accounts for a relatively small fraction of UK economic activity the negative impact of the figure was somewhat muted.

GBP exchange rates could rally sharply this evening if the Bank of England (BoE) delivers an interest rate hike as markets anticipate.

Euro

Demand for the single currency remained limited on Wednesday as July’s raft of Eurozone manufacturing PMIs confirmed that the economy started the third quarter on a softer footing. Following on from the weaker second quarter gross domestic product data this prompted EUR exchange rates to extend their downtrend. As the data highlighted rising concerns over global trade the Eurozone may struggle to find any fresh strength in the months ahead if the risk of a trade war mounts.

An uptick in June’s Eurozone producer price index may offer the Euro a rallying point this afternoon as this would point towards rising inflationary pressures.

US Dollar

Although the ISM manufacturing index disappointed expectations, falling from 60.2 to 58.1 in July, this was not enough to weigh down USD exchange rates. In spite of this decline the US manufacturing sector remains firmly within a state of growth. While worries remain over the likely negative impact of US tariffs and protectionist trade policy the mood towards the US Dollar remained generally positive overnight.

As forecasts point towards a moderate uptick in factory orders in June the US Dollar could gain further traction tonight.

Canadian Dollar

Hopes that NAFTA renegotiations could yield a successful outcome in the near future encouraged the Canadian Dollar to strengthen on Wednesday. While global trade jitters continue to weigh on the minds of investors CAD exchange rates were able to shake off this lingering risk aversion. Even an unexpected increase in US crude oil stockpiles failed to dent demand for the Canadian Dollar, in spite of oil prices sinking once again.

However, CAD exchange rates may well struggle to maintain any gains over the course of the day if oil markets remain under pressure.

New Zealand Dollar

While the second quarter New Zealand unemployment rate showed a surprise increase this failed to significantly dent NZD exchange rates. As the increase in unemployment was largely driven by an uptick in the participation rate this indicates that a greater number of New Zealanders are economically activity. Although doubts remain over the outlook of the New Zealand economy this kept the ‘Kiwi’ on a steadier trend.

In the absence of any fresh domestic data the New Zealand Dollar could weaken today, especially if market sentiment deteriorates.


Data Released

August 2nd 11:30 AUD Trade Balance (JUN) 900 million
August 2nd 19:00 EUR Eurozone Producer Price Index (YoY) (JUN) 3.5%
August 2nd 21:00 GBP Bank of England Rate Decision 0.75%
August 3rd 00:00 USD Factory Orders (JUN) 0.7%

Post by TorFX

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