Pound Returns to Uptrend Despite Manufacturing PMI Disappointment

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Headlines

  • Rising Copper Price Supported Australian Dollar – AUD exchange rates benefit from stronger Chinese data
  • Pound Strengthened Despite UK Manufacturing PMI Dip – Signs point towards solid momentum within manufacturing sector
  • Eurozone Economy Continued to Outperform Rivals – Euro boosted as PMI surged to record high
  • Robust US Data Failed to Reverse USD Losses – Demand for ‘Greenback’ to remain limited

Australian Dollar

Even though Australia’s December manufacturing PMI proved somewhat disappointing AUD exchange rates still found some support as the new trading year started. This was largely thanks to a better-than-expected Chinese manufacturing PMI, which encouraged investors to pile back into commodity-correlated currencies on Tuesday. With copper prices also shored up, and Chinese demand for base metals looking set to increase, the appeal of the Australian Dollar naturally improved.

With no fresh Australian data set for release today, however, the antipodean currency is likely to struggle to maintain any particular positive momentum.

Sterling

While the UK manufacturing PMI dipped from 58.2 to 56.3 at the end of 2017 this failed to dent the mood of the Pound. As the measure remained firmly within expansion territory this offered encouragement to investors, who hope to see this momentum continue in the months ahead. However, with the manufacturing sector still accounting for a limited percentage of UK gross domestic product the boost from this data is unlikely to be long-lived.

Even so, if this afternoon’s construction PMI proves similarly positive GBP exchange rates could see further gains in the short term.

Euro

The Eurozone economy continued to outperform expectations as the latest raft of domestic manufacturing PMIs bettered forecasts. Demand for the Euro surged as the overall Eurozone index rose to a record high of 60.6, indicating that the sector picked up further momentum heading into 2018. This could give the European Central Bank (ECB) greater cause for optimism in the economic outlook, potentially boosting the odds of some monetary tightening coming before the end of the year.

As forecasts point towards a drop in the German unemployment rate the Euro may see a fresh boost today.

US Dollar

Although the US manufacturing PMI clocked in at its strongest level since March 2015 this was not enough to impress markets. The US Dollar remained under pressure overnight even as the US economy showed fresh signs of robustness, continuing to suffer bearishness as risk appetite picked up. While this strong showing suggests that another Federal Reserve interest rate hike is on the horizon a sense of domestic uncertainty is still hanging over the ‘Greenback’.

USD exchange rates could find a rallying point, though, if the Federal Open Market Committee’s (FOMC) December meeting minutes prove hawkish in outlook.

Canadian Dollar

Despite Brent crude and WTI both starting 2018 trending above US$60 per barrel the Canadian Dollar struggled to find any particular traction against its rivals. Oil prices were boosted by news of increasing civil unrest in Iran, potentially further denting global supply in the coming months. Even so, the ‘Loonie’ lacked significant momentum despite general market appetite for higher-yielding assets improving.

Unless market risk aversion picks up, though, the downside potential of CAD exchange rates will remain limited.

New Zealand Dollar

Dairy prices reversed some of their recent decline overnight, with the Global Dairy Trade index picking up 2.2%. Nevertheless, as the commodity has lost significant value in recent months the impact on the New Zealand Dollar was somewhat limited. While market risk appetite strengthened the ‘Kiwi’ lost out to its antipodean currency.

Confidence in the New Zealand Dollar looks set to remain muted today, with investors still jittery over the domestic political outlook.

 Data Released

January 3rd 18:55 EUR German Unemployment Rate (DEC) 5.5%
January 3rd 19:30 GBP Construction PMI (DEC) 53.2
January 4th 01:00 USD ISM Manufacturing (DEC) 58.2
January 4th 05:00 USD Federal Open Market Committee Meeting Minutes

Post by TorFX

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