Sterling focus on EU Referendum in quiet week for data
A currency market update from Carl Hasty, director of Smart Currency Business.
The worst US non-farms payrolls data since 2011 released on Friday saw sterling initially gain ground against the US dollar but lose rapidly against the euro and other currencies. However these gains against the US dollar soon reversed into losses which means sterling has started this week much weaker than it started last week.
A quiet week lies ahead for UK economic data releases, with housing inflation data due on Tuesday. The most influential data will be reserved until Wednesday, however, when we see the release of manufacturing production figures for the previous month. Following an unexpected growth in the industry throughout May, investors will be eagerly awaiting further positive news from the UK manufacturing sector. Aside from this, any further information on the likely outcome of the 23 June referendum on the UK’s EU membership will continue to greatly influence sterling markets.
Surprise strength for euro
The euro gained against the US dollar and sterling on Friday as very poor US non-farm payrolls undermined the US dollar and sterling. Volatility was muted following Thursday’s European Central Bank’s interest rate decision, which remained unchanged. Even though this was expected, there is still a focus on far more important economics events.
This week, key Eurozone data is thin on the ground but there will be a steady flow of influential data such as German factory orders. However, the UK’s EU Referendum will continue to claim centre stage, with around two weeks to go until the Referendum decision.
Jobs data increases uncertainty about US rate rise
It was a poor day for the US dollar on Friday, with the all-important Non-Farm Employment Change coming out a lot less than expected. Because of this, talk returned to whether the US Federal Reserve will actually raise interest rates, with BNP Paribas mentioning that these could be pushed back until 2017. Following this release, we saw Average Hourly Earnings data which came out as expected, and the Unemployment Rate, which continued to drop. ISM Manufacturing Purchasing Managers’ Indices (PMIs) also failed to halt the weakness seen, with it dropping to lows not seen since 2014.
We have a quiet week for US data in store for us. Monday will see US Federal Chair Janet Yellen speak; any remarks made regarding the interest rate, and how the Non-Farm Employment Change has affected the central bank’s decision, will be of interest. Wednesday will see the release of JOLTS Job Openings data, which is expecting a small increase on the previous month. Weekly Unemployment claims on Thursday is expected to post another stable figure, and on Friday Consumer Sentiment is expected to indicate a small decrease from the previous month’s figures.
Contrasting fortunes for Canadian and Australian dollars
Friday saw trade balance figures from Canada, which came out at -$2.9bn, below the expected figure of -$2.5bn. This demonstrated that the Canadian economy is increasingly reliant on its imports and that its export market is dwindling. These figures have remained negative for over a year and are no doubt contributing to the continued weakness of the Canadian dollar. Labour inflation figures were also released from Canada, and these came out as forecast at 0.4%, adding to concerns about the country’s rocky economy.
On Monday we have Australia’s Construction Index released, with figures expected to remain positive following last month’s drastic increase in performance from the construction industry. We should see some strength on the Australian dollar should the data prove to be positive again. Otherwise, the Australian dollar’s performance will depend on events elsewhere.