Lower than expected data is bad news for sterling
Currency market update from Carl Hasty, director, Smart Currency Business.
Sterling slipped across the board on Friday as UK manufacturing growth once again failed to reach the forecast level. With the manufacturing purchasing managers’ index (PMI) reading 51.0 versus the expected 51.4, sterling fell to a fresh 15-month low against the euro and saw its US dollar gains made earlier in the week dissipate.
Plenty of data is set for release from the UK this week which has the potential to undermine sterling if expectations are not met. The PMI for the construction industry is released this morning and will show the level of growth throughout the industry in March with a small reduction from the previous months reading expected. Investors however, will be awaiting the release of the March PMI from the services industry on Tuesday as this represents a much larger contributor to the UK economy and the expectation is for an improvement over February’s reading. Aside from this, the next major data will be released on Friday, where manufacturing production in the UK is forecast to have contracted by 0.1% throughout March. Should we see any unexpected increase in this figure, sterling could find a welcome boost.
Can the strength of the euro continue this week?
Friday was yet another good day for the euro, as it moved over 1% against sterling and also came close to the highest point against the US dollar in five months. This good start on Friday began at 9am with Purchasing Managers’ Index (PMI) data from the Eurozone coming out better than the forecast 51.2, at 51.6.
With such an excellent performance from the single currency last week, we expect to see it stay around the 15 month highs against sterling and five month highs against the US dollar if there is data to support it. Tuesday will be the first major release, with Germany manufacturing orders expected to improve from last month’s figure of -0.1% up to 0.5%. On Wednesday however, German industrial production data is forecast to fall sharply from February’s figure of 3.3% down to -1.5%.
On Thursday, the European Central Bank releases the minutes of their March meeting which will be closely scrutinized for the reasons behind the interest rate reduction and increase in their programme of quantitative easing. It will also be analysed for any insights into likely future policy.
Good data helps the US dollar spring back on Friday
The US dollar showed some strength on Friday thanks for positive data releases. Average Hourly earnings posted better growth than expected for the first time in two months, but the main release of the day however was the Non-Farm Employment change – and this once again was better than expected, 215,000 against an expected 200,000, showing positive growth in the sector. These are two key data releases the US Federal Reserve will be pleased about heading into April’s Federal Reserve Meeting.
Last week was a big one for data releases, but we can expect the opposite this week. Tuesday will see the release of the ISM Non-Manufacturing Purchase Managers’ Indices, and this is expected to post further growth. Wednesday we expect to see the Federal Reserve minutes from their most recent meeting, and this should give us a clearer idea of how each members deem a short-term Interest Rate hike. Following this we will see the release of weekly labor data on Thursday, expected to remain stable, followed by US Federal Chair Yellen speaking.
