Currency Note

Sterling still struggling as dollar and euro gain

By Ricky Bean March 7th, 2017

sterling slips

Any Brexit updates may move the pound today especially as the Lords continue to dig there heals in. In Europe and the US the central banks are what the markets remain focused on. Could we see rate hikes in both regions? Economic data would support that in the US, in Europe it is likely to be too soon but we could see a reduction in their programme of quantitative easing.

Here’s what’s happening in the sterling, euro and dollar markets.

Brexit uncertainty is causing economic concerns

Yesterday was a quiet day for sterling. Following last week’s slide, political uncertainty continues to add to the pressure on the UK currency.

As far as business headlines were concerned, much of the focus was on the sale of General Motors’ Vauxhall to the French car makers that own Peugeot. The biggest concern for the UK is that 4,500 jobs are now at risk in the UK plants in Ellesmere Port and Luton.

On a more positive note, a survey conducted by manufacturing lobby group EEF and consultancy BDO found that UK factories were growing at their most aggressive pace in more than three years, mainly due to the weak currency.

Based on recent data, there are question marks over whether this momentum can be sustained. Friday’s UK manufacturing data will be closely monitored as a result. Also, most of the cars exported go to other EU countries. Following Brexit, if no trade agreement is reached with the EU, exports to Europe may see a significant decline.

The housing sector will come under scrutiny this morning with the release of the Halifax house price index. With the budget later this week, it will be interesting to see how the sector is performing.

Focus remains on ECB meeting on Thursday

The single currency continues to rally after an inconsistent February. French purchasing managers’ index data and the Sentix investor confidence index produced positive results yesterday. However, it’s unlikely to have had a dramatic effect on the euro’s strength as it’s been political uncertainty which has been driving the single currency.

Today, German production data is released which will look to maintain rising confidence in the euro. Nonetheless, all eyes will be on the European Central Bank’s press conference and interest rate decision on Thursday.

Dollar resumes bullish trend

The US dollar continued to strengthen against both sterling and the single currency yesterday. The Greenback had given up some of its gains on Friday due to end-of-week profit taking.

Markets are now pricing in an 80% chance of an upcoming interest rate hike in the US. Economic data has been positive and held its ground despite the uncertainty surrounding the new political direction.

A figure that will be closely watched this week will be non-farm payrolls on Friday. If this turns out to be positive, it will be hard to think there could be anything in the way of a further interest rate hike next week.

Meanwhile, US factory orders rose for a second consecutive month in a row, suggesting that the recovery of the manufacturing sector was gaining momentum.

Looking to the day ahead, the key data release from the US is the trade balance.

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