UK Manufacturing PMI Disappoints, Pound (GBP) Exchange Rates Soar Regardless
The Pound (GBP) came out fighting on Thursday morning, bolstered by ongoing optimism for Britain’s post-Brexit economic future and supported by the current weakness of the US Dollar (USD).
This rally occurred despite the fact that the UK’s IHS Markit manufacturing PMI missed its mark in January, falling to 55.3, down from December’s 56.2 and below the market expectation of 56.5.
This marked the weakest rate of expansion within the manufacturing sector since June of 2017, with output growth slowing to a six-month low and new orders rising the least in seven months.
In slightly better news, however, jobs were added at a faster pace during this period whilst new export order inflows strengthened thanks to trading partners in China, North America, the Middle East and Japan.
Lacking much in the way of upbeat domestic data releases today the Pound’s rally seems to be more akin to a ‘relief rally’ – relief on the back of recent better-than-expected UK economic growth readings, upbeat Bank of England (BoE) forecasts and fresh confidence in Britain’s post-Brexit future.
GBP/EUR Exchange Rate Inches Ahead Despite Robust Eurozone Manufacturing Figures
The Pound Euro (GBP/EUR) exchange rate steadily climbed on Thursday morning, seemingly unperturbed by a strong performance in the Eurozone’s own manufacturing sector.
The IHS Markit Eurozone manufacturing PMI printed at 59.6 in January 2018, consistent with the preliminary reading but easing slightly from December’s record high of 60.6. Whilst this does point to a small slowdown in factory growth, it still remains one of the strongest readings ever seen within the sector.
It should be noted, however, that because this release was a finalised reading, the markets already largely knew what to expect and had already priced in the result.
GBP/USD Exchange Rate Holds above 1.4, US Fed leaves Rates Unchanged
The Federal Reserve announced late on Wednesday that they will be leaving their benchmark interest rate unchanged in an attempt to further support jobs growth and strengthen levels of inflation.
Despite this decision the Fed’s overall economic outlook remained mostly upbeat, with the stage set for a rate hike at the next meeting in March.
Nonetheless, the decision to hold steady in January underscored apprehensions regarding the fragility of the economic expansion, particularly with inflation in the US remaining limp.
This marked the end of Janet Yellen’s four-year tenure as Fed Chair, leaving markets to assess how her successor, Jerome H. Powell, will fare when he takes the oath of office on Monday next week.
GBP/CAD Exchange Rate Proves Resilient as Canadian GDP Beats Expectations
The Pound Canadian Dollar (GBP/CAD) exchange rate proved resilient on Thursday morning, successfully rallying despite recent news that Canada’s economy grew beyond expectations in November.
According to Statistics Canada the Canadian economy grew by 0.4% month-on-month in November, consistent with the forecast but significantly up from the previous period’s sluggish growth rate of 0.0%.
Year-on-year Canadian GDP posted a 3.5% gain, up from the previous period’s 3.4% and beating the market forecast of 3.4%.
This resulted from an increase within the manufacturing, mining, quarrying and oil and gas sectors, all factors that could ultimately encourage optimism for the Bank of Canada’s (BoC) monetary policy outlook.
The Pound maintained its lead nonetheless, bolstered by ongoing Brexit optimism and diminishing worries that government contractor Capita might suffer the same fate as Carillion.
GBP/AUD Exchange Rate Climbs 1% as Australian Building Approvals Slump
The Australian Dollar struggled in the early hours of Thursday, limited by a drastic slump in Australia’s building approval figures for December.
Building permits declined by a sharp 20.2% month-on-month, severely down from the previous 11.7% rise and below the market forecast of an 8% fall.
This disappointing print seemed to result from a notable decline in apartment approvals, with private sector house approvals mostly remaining stable during the December period.
This news ultimately boded poorly for the ‘Aussie’ Dollar, particularly following the Q4 contraction in consumer prices.
The Pound to Australian Dollar (GBP/AUD) exchange rate quickly capitalised on this weakness.
GBP/NZD Exchange Rate Climbs on Hawkish US Fed Intentions
The Pound New Zealand Dollar (GBP/NZD) exchange rate extended its lead on Thursday, soaring after US Fed Chair Janet Yellen outlined the Fed’s intentions to raise interest rates this year.
With markets now pricing in a rate hike from the US Fed in March demand for the riskier commodity currencies has dropped off, with the ‘Kiwi’ Dollar being no exception.
Looking ahead markets will be keen to assess next Monday’s Roy Morgan consumer confidence readings for New Zealand, as well as Tuesday’s highly significant global dairy trade price auction.
If the dairy price surge continues then the GBP/NZD exchange rate could come under renewed pressure.
If dairy prices fall, however, then the New Zealand Dollar could continue to struggle.