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PMI data helps boost the pound's weekly gains against the US dollar
The pound staged a recovery yesterday, gaining close to half a percent against the US dollar and Chinese yuan, and finishing the day slightly up on the euro.
There have been mixed signals on the economy this week from the Purchasing Manager’s Index (PMI) final reports, with Services PMI well above expectations on Wednesday at 49.3, but Construction PMI well below expectations yesterday at 45. That’s the worst it’s been since the early days of the pandemic.
However, the UK was far from being the worst performer even for construction PMI, with the eurozone and Germany in particular well below.
The pound was boosted by a the same generally improving risk sentiment that has dented the dollar index. Also, perhaps, by the deputy governor of the Bank of England (BoE), Ben Broadbent, saying yesterday that it was an “open question” whether interest rates might rise again. With services PMI close to being in positive territory (over 50 indicates expansion) there are rising hopes that a recession can be avoided.
If so, that could be bad news for mortgage holders, with the BoE provoked to keep on applying the interest rate pressure to cool inflation. The result of that has been felt again this morning with the Halifax House Price Index again showing falling prices. However, although property prices fell 0.4% in September this was a marked deceleration in declines from August’s 1.8%, taking the annual drop in prices to 4.7%, similar tp that recorded by the Nationwide on Monday.
In political news, the Labour Party has made a big victory in a by-election in Glasgow, with a 20% swing from the Scottish National Party. It will be a major boost for Labour as it heads into its conference this week. Despite its own conference this week, the Conservative vote fell by 11% and they lost their deposit.
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GBP: House prices fall for sixth month
The pound has strengthened overall in the past 24 hours, particularly against the US dollar (0.50%) but marginally against the euro too.
After a month in which GBP/EUR fell by well over 1%, stability for a week may be welcomed.
This morning’s house price falls, as recorded by the Halifax, highlight that interest rate rises continue to bite, and comments by the BoE’s deputy governor failing to rule out more interest rate rises suggest borrowing costs could rise further. We’ll hear the latest BBA mortgage rates at 11am, after last month they hit a 25-year high.
Next week is a little light on data overall, apart from the GDP result on Thursday. Definitely one to watch.
GBP/USD past year
EUR: Germany’s trade balance improves
The single currency gained strongly against the US dollar and yuan yesterday, gaining close to half a percent. It has weakened against sterling over the week, so far.
Overall it’s been a positive week against the commodity-backed currencies like NOK, CAD and AUD, while the service economies have marched ahead.
Germany’s Balance of Trade improved yesterday, with both imports and exports falling more than expected. We’ve just had news that German factory orders recovered strongly in August.
There’s little on the docket for early next week, and you’ll have to wait until Friday for final inflation rates across the eurozone.
USD: Non-farm payrolls data today
After strengthening early yesterday the dollar weakened against the euro and sterling over the course of the day, taking USD/GBP close to 1% down from its peak on Wednesday.
This afternoon we will hear the monthly Non-Farm Payrolls result, the best guide to the strength of the US labour market. Somewhere well below 200,000 new jobs is expected, but JOLTS Job openings surprised the markets on Tuesday with a more robust than expected jobs data and the same could happen today.
We’ll also hear America’s official unemployment rate, currently at 3.8%. Better labour data would support the case for more interest rate rises and so could easily affect USD.
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