UK Construction Slows, Pound (GBP) Exchange Rates Stumble
Pound (GBP) exchange rates remained weak on Friday morning, hindered by news that the UK’s construction sector is on the brink of stagnation.
According to IHS Markit’s latest UK construction snapshot, UK building companies experienced a very subdued start to 2018, with total industry activity falling to a score of 50.2 in January, down from the previous reading of 52.2 and the forecast of 52.
This is close to the 50-point mark that divides contraction from expansion and, to make matters worse, the survey revealed a full return to contraction in residential building activity.
Sam Teague, an IHS Markit Economist commented on the results:
‘Respondents reported increased hesitance among clients to invest in new projects amid heightened concerns over the UK economic outlook.’
The report did point towards confidence in future growth, however, with many firms now anticipating an increase in new projects later in the year.
GBP/EUR Exchange Rate Falls as German Parties Make Progress in Coalition Talks
The Pound Euro (GBP/EUR) exchange rate pared some of its recent gains on Friday as markets digested yesterday’s extremely robust Eurozone manufacturing readings and recent news that German parties are making progress in negotiations towards a ‘grand coalition’.
Chancellor Angela Merkel’s Conservatives (CDU) and Martin Schulz’s Social Democrats (SPD) have reportedly entered the endgame in negotiations, agreeing on key elements such as the climate targets for 2030, migrant reunion laws and now elements of education.
It should be noted, however, that significant policy differences still remain between the two parties and negotiations are now extremely close to the Sunday deadline.
Nonetheless, negotiators in Berlin seem willing to compromise. Andreas Scheuer, General Secretary of the Christian Social Union has asserted that after four hours of top-level talks both teams are now closing in on a deal – a prospect that could be the beginning of the end for Germany’s four-month absence of a government.
GBP/USD Exchange Rate Tumbles ahead of US Employment Data
The Pound US Dollar (GBP/USD) exchange rate tumbled on Friday morning as markets prepared for the imminent release of a range of US employment figures – all expected to be upbeat.
Analysts currently expect a surge in non-farm payrolls (148k to 180k) a continuation of the historically low unemployment rate (4.1%) and a slight jump in average hourly earnings growth (2.5% to 2.6%).
This climb in wage inflation would be the highest in four months, an outcome that could push the cautiously optimistic Fed even closer to a rate hike at their next meeting.
The GBP/USD exchange rate will likely encounter increased volatility as a result.
GBP/CAD Exchange Rate Trades within Narrow Band – Canadian Manufacturing Grows
Canada has benefited from a run of upbeat data releases this week, climbing on the back of a 3.5% GDP print and a surge in the manufacturing sector.
RBC’s Canadian manufacturing PMI printed at 55.9 in January, up from the previous period’s 54.7 and marking the highest level in 9 months as new orders and employment both rose.
The PMI functions as a measure of manufacturing business conditions, with the positive reading boding well for the Canadian economy moving into 2018 and also raising the possibility that the Bank of Canada (BoC) will become more hawkish in terms of monetary policy this year.
Nonetheless, the GBP/CAD exchange rate remained within a narrow band, with markets seemingly cautious ahead of the US employment figures.
GBP/AUD Exchange Rate Strong on Rallying US Dollar (USD)
Commodity currencies are currently shaking in their boots in anticipation of the US employment readings.
The GBP/AUD exchange rate has climbed as a result, capitalising on the currently strong performance of the US Dollar (USD) as markets prepared for a forecast rise in US wage growth and employment.
On the data front Australia saw a small rise in their Q4 2017 producer price index (1.6% to 1.7%), though this was not enough to negate Thursday’s extremely large contraction in building approvals (12.6% to -20.0%).
There is, however, still the possibility that the US data will disappoint, an eventuality that could put GBP/AUD under renewed pressure.
GBP/NZD Exchange Rate Climbs as New Zealand Building Permits Plummet
The Pound New Zealand Dollar (GBP/NZD) exchange rate climbed on Friday as markets reacted to last night’s disappointing drop in New Zealand building permits.
According to Statistics New Zealand the total number of building permits issued in New Zealand plummeted by a seasonally adjusted -9.6% month-on-month rate in December, down significantly from the previous period’s rise of 9.6%.
Despite this overall drop the number of residential building permits rose by 3.4% last year, hitting its highest level in 13 years and offsetting some of the decline in stand-alone houses.
Looking ahead, the GBP/NZD exchange rate could also encounter some volatility on the release of the US wage figures, with an upbeat reading liable to quash demand for the riskier New Zealand Dollar and a poor run liable to put GBP/NZD under pressure.