Sterling continued to show improvements in currency market yesterday, owing predominantly, to weaknesses in its major currencies. With summer in full swing, investors will still be focused on the Jackson Hole Economic Symposium held in the US later this week, so there is plenty of potential for unexpected currency fluctuations.
Housing jitters for sterling
Sterling continued its recovery phase, extending its gains from last week following positive economic data releases. The data could be deciphered to suggest that the EU referendum outcome might not have negatively impacted the UK economy in the way that was previously feared, but it is still too soon to tell.
Sterling posted the highest level against the US dollar since early August, as a result of positive sentiment and US dollar weakness. Once again, data from the UK beat expectations. The CBI industrial trends survey (reviews total orders) posted a better-than-expected number, although it was still in the negative territory, it indicates that conditions are not as bad as feared. The survey had little impact on sterling due to the due to the weighting of the sector in the UK economic output numbers.
The UK housing market comes into focus today as the industry predicts a decline in house prices in 2017 following the EU Referendum vote. Today UK mortgage approvals are set to hit the wires and are expected to decline from last month, strengthening the view of declining house prices
Eurozone data has minimal effect on weak euro
The euro weakened against both sterling and the US dollar today. The Eurozone saw a run of Flash Purchasing Managers Indices (PMIs) released today. German manufacturing and service PMIs shrank, whereas in France the increase in the services PMI countered a contracting manufacturing PMI. Despite the Eurozone in general seeing rising PMIs for both services and manufacturing, these data releases had little effect on the euro. The overwhelming themes effecting the euro still include the question of a US Federal Reserve interest rate rise before the end of the year and the positive data releases seen in the UK last week.
This morning will see the release of German final Gross Domestic Product (GDP) data – measurement of growth – which is expected to decline from last quarter’s 0.4% to 0.3% this quarter. This afternoon we will see Belgian NBB business climate data, which is forecast at 1.1. Neither of these are high tier data releases so their impact on the market it likely to be minimal.
US Dollar holding tight for the end of the week
The US dollar is sitting back at the moment as the market waits to see what Janet Yellen will discuss at the Jackson Symposium on Thursday and Friday.
Some manufacturing Purchasing Managers’ Index (PMI) data was released stateside today and came out worse than expected, but this has done nothing to the US currency. Therefore, it has been sterling which has driven direction in the GBPUSD currency pair since the start of the week. All eyes are now on Thursday and Friday key economic meeting.
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