The Three-Way Battle Continues

By Simon Eastman

Yesterday we saw the pound trade within a small range against the single currency, whilst trading a mixed session against the US dollar.

As the data flows started early doors, the pound traded in a tight range against the euro as we saw a mixed bag of German, EU and UK PMIs released. The Germans were up first showing that Europe’s largest economy was struggling with its manufacturing and overall sectors, whilst the services sector showed a better-than-expected figure of 48.2 rather than the 48 expected. France showed improvements across the board, ahead of the EU figures at 10am. Services showed an improved reading of 50, with the overall figure posting 48.9, up from 48.5. Manufacturing took a dip from 47, only posting 46.1. The key here is any figure under 50 shows contraction in the sectors, so all the readings for the EU and its members, showed contraction, apart from the EU services sector.

In addition, the EU also released inflation readings which showed no change to expected figures, with the monthly readings still negative and the yearly still above the ECB target range. The result of all this poor data was not really evident against sterling, which traded up and down within a 20-pip range, but more so against the US dollar which saw the euro weaken by half a cent in the morning.

The UK PMI released showed a better picture for the UK with services up to 54.3 and the composite overall reading again showed a healthier 53.3. Manufacturing let the side down, coming out lower than forecast at 47.1, also below the key 50 level showing whilst services and generally the sectors are growing, the manufacturing sector is shrinking. The overall positivity helped the pound up against the ailing euro but remained flat against the dollar, which continued to make gains against both currencies.

After lunch, Canada released its retail sales, which showed a stronger December than markets expected, giving the Loonie some strength against the pound, but given the figure excluding auto sales was lower, the rally was short lived, and sterling ended back up at the 3-week peak.

The day finished off with more PMI readings, this time from the US, which again showed a mixed bag, with services at 51.3, manufacturing at 51.4 and composite at 51.5. The fact only one reading beat forecasts was irrelevant as markets looked at the figures which showed all sectors are growing, compared to the UK and EU, which helped the dollar gain a cent against the pound and similar against the euro over the days trade. Cable rebounded, claiming back half its previous loss near close of trade as US home sales data showed a flat market but dollar/euro held steady.

The week rounds off today with the Good for Knowledge reading on UK consumer confidence, ahead of the German GDP and IFO readings, which give a key indicator to how leading companies see current business conditions and future expectations. We have the ECB member Isabel Schnabel speaking twice by lunchtime, alongside Bundesbank president Joachim Nagel and close the week off with the Federal Reserve’s monetary policy report at 4pm.

Quiet for the UK, so markets will be eyeing the developments in Germany over the morning and looking for opportunities to bet for or against the single currency. Those with sterling in hand and euro or dollars to buy or sell would be prudent to stay connected with their broker here, or for those looking to register, speak to one of the team today for some friendly guidance on your upcoming requirement.