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Pound Sterling This week has been one of gains and upward momentum for Sterling.
On Monday the Pound made gains against the US Dollar and edged upwards against the Euro after May’s manufacturing PMI data rose to 51.3 from the 49.8 recorded in April. A figure above 50 signals expansion. Construction data also boosted the Pound after it beat expectations by posting growth for the first time in months. It was also boosted by a rise in retail sales.
Midweek the Pound strengthened to a one-month high against the US Dollar after stronger-than-expected UK service sector data boosted confidence that the nation is on track to make a recovery. The UK Service Industry, which makes up around 70% of British Gross Domestic Product, climbed to a yearly high PMI score of 54.9 during May. The surprisingly robust figure smashed economists’ expectations of 53.1 and reflected significantly well on the UK economy’s performance so far in the second quarter.
On Thursday the currency Sterling hit its highest level against the ‘Greenback’ since August 2010 yesterday after the Bank of England announced that it would keep its asset-purchasingprogramme on hold.
Now, Sterling is set to make its biggest weekly gain in almost 3 years against the US Dollar as economists wait for the release of data that is expected to show that US employers added jobs at a slower pace than expected last month.
The Pound has gained 5.2% in the past three months, the best performer among 10 developed-market currencies.
US Dollar
The ‘Greenback’ has had a mixed week after it started Monday gaining ground against the Japanese Yen despite the International Monetary Fund saying that the Japanese currency has depreciated too much and too fast. Against the Euro and Pound the Dollar weakened due to Chinese data creating greater demand for riskier assets. The next major data release for the US Dollar is Friday’s latest jobs data.
Midweek the ‘Buck’ held above 100 Yen for a second consecutive day but weakened against a number of its most traded peers due to an increase in demand for riskier assets. Comments made by Kansas City Federal Reserve President Esther George also weighed on the Dollar after she urged the Fed to reduce its bond-buying programme.
By Friday the ‘Greenback’ had weakened against the majority of its most traded peers due to an increase in demand for riskier assets. Against the Japanese Yen the US Dollar suffered its biggest one-day decline in three years as the markets await the release of the latest US jobs report. A better than expected figure will increase speculation that the Federal Reserve may choose to cut back its quantitative easing programme.
The Euro
The Euro strengthened at the start of the week after the single currency found support after European Central Bank President Mario Draghi said that the Euro zone economy is on track to make a recovery later in the year, the comments calmed investor nerves, which benefitted the Euro.
The currency edged upwards against the Pound after data showed that contraction in the Eurozone’s manufacturing sector eased in May. Although economists predicted that the gauge of manufacturing activity for the 17-nation currency bloc would remain unchanged from April’s 47.8. It actually rose to 48.3 in May, taking it closer to the 50 mark which separates growth from contraction.
Midweek the currency weakened against Sterling after the latest Eurozone Purchasing Managers Index for Services was worse than economists had forecast. The PMI contracted to 47.2, down from 47.5 in the previous month. Any figure below 50 marks a contraction. Weighing on the currency was the news that Finland fell into recession during the first quarter of the year.
Australian Dollar
The ‘Aussie’ went into freefall this week with some economists describing the fall as a massacre. The currency started the week weakening against its peers after the latest HSBC Manufacturing Purchasing Managers Index for May fell to 49.2, down from the expected reading of 49.6. The ‘Aussie’ then weakened against all of its major peers as the Reserve Bank of Australia chose to maintain its benchmark interest rate at the record low level of 2.75%.
Following the release of GDP data that came in weaker-than-expected the currency fell to an 18-month low against the Euro and continued its decline against Sterling.
On Thursday it hit its lowest level since 2011 against the US Dollar due to the nation’s shrinking interest rate advantage dampening the currency’s appeal. Weakening the ‘Aussie’ further was yesterday’s weaker-than-expected economic growth figures. Annual growth slowed to 2.5% in the first quarter of the year, the weakest growth rate in two years.
The ‘Aussie’ is set to make its worst weekly rout since 2011 over the weekend as economists predict that the latest Chinese data due tomorrow will show that imports to the world’s second largest economy slowed, dimming the demand for Australian commodity’s.
New Zealand Dollar
This week the ‘Kiwi’ fell to a nine-month low as investors, concerned about global growth opted to seek safety in the US Dollar and other safe havens. The signs of a slowdown in the US economy have led to weakening in demand for perceived riskier commodity based currencies.
The ‘currency is set to decline further as the Oceanic currencies fall out of favour with investors due to growing signs of a slow-down in Australia and increased speculation that the US Federal Reserve will curb its monetary easing policy.
Canadian Dollar
The ‘Loonie’ had a mixed week against its US relation. On Monday it rose to a two-week high against the US Dollar due to the US manufacturing sector posting a surprise decline. The Canadian Dollar joined a mix of currencies, such as the Euro, Yen and Australian Dollar that gained against the U.S. Dollar after the U.S. ISM manufacturing number shrank in May, showing contraction in the sector.
It then fell after Statistics Canada revealed that Canada’s trade deficit rose from $3 million in March to $567 million in April. Exports edged down 0.2% during the month to $40.3 billion, led by decreases in metal ores and non-metallic minerals, energy products, and industrial machinery. Imports rose 1.2% to $440.8 billion amid higher levels of energy products, motor vehicles and parts.
On Thursday the ‘Loonie’ made its biggest gains in a year against the US Dollar after new Bank of Canada governor Stephen Poloz made his first public comments that reiterated the view that interest rates will rise as the economy improves. The currency also found support from a rise in crude oil, Canada’s biggest export.
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~~~~~~~~~~~~~~~~~~~~~~~~~~~Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.
