Pound back in favour, focus on services PMI

4 November, 2015

Tom Arnold

Over the last week we have seen a significant trend change on the currency markets, thanks in no small part to Mario Draghi’s press conference last Thursday. He said at the time that further European Quantitative Easing was likely and as a result the Euro, which had been on somewhat of a rise, suddenly and significantly fell back across the board. The US Dollar had been under some pressure thanks to the lack of an interest rate rise in September, but with the Euro out of favour again the Greenback was able to make significant gains, except in one major pairing GBPUSD. The reason for this is that the surprise winner from this change in trend was the previously ailing Pound.

UK data had been failing to impress, and with the government under significant pressure on various economic plans, most notably Tax Credit cuts, the last place you would have expected a surge in strength would have been London. However the markets took the view that the Pound was a better bet than either the Euro or the Dollar, and as such we saw rates soar, particularly against the Euro, where we have seen a 4 cent gain in only a week. The Pound was further supported by manufacturing PMI on Monday, which came in significantly above expectations and reversed the recent trend of poor UK data.

The US Dollar has made some gains back in the last couple of days, with analysts once again starting to price back in US interest rate rises, with a possible hike in December currently expected by 57% of a recent Bloomberg pole. Rates for Sterling to Dollar are still a couple of cents up on where they were a week ago, so if you need to buy Dollars, this is still a good buying opportunity.

Today is a very busy day on the currency markets, with plenty of data due out across all major economic zones. We start off with another round of PMI data from around Europe and the UK – this time services PMI, followed by European PPI – historically a positive showing in manufacturing PMI is followed by an upturn in services PMI, so the Pound is already surging on this morning ahead of this data – watch for any surprises as a failure to meet these expectations could cause a drop off. Later today we have US mortgage numbers and employment data, FED Chair Yellen testifies in front of the Senate and the RBA’s governor also speaks down under. US Dollar pricing is likely to be very tied to what Yellen has to say to the senate, particularly about interest rate hikes, and a recent surge in Aussie Dollar strength could be tempered if Governor Stevens does suggest interest rate cuts are still on the horizon.

As ever stay in close contact with your Currency Index account manager to be kept informed of exactly what is happening and how it is likely to affect your upcoming currency purchase.