UK PMI Carries Sterling Exchange Rates Higher

4 November, 2014

Simon Eastman

Monday came with anticipation within markets, the first day of a new month and fresh off a rally for sterling on Friday, as to whether it was the often seen “end of month run” or a true reflection of renewed sentiment behind the pound.

What it actually came down to was the string of PMI data we saw released, fortunately for sterling, went the UK’s way. We had manufacturing PMI released for Spain, Italy, Germany, France, Greece, the EU and UK with most missing their forecasts, which included Germany and the EU. With UK posting 53.2 compared to 51.2 expected, this gave sterling the momentum to hold its place against the single currency and rather than see the gains of Friday correct, we held steady, trading in a very small but equally positive range.

Those with euro currency purchases to make did well to secure on forwards, fixing the rate at these month high levels for future transactions, negating any risk which might be coming from ecostats this month. Last month, we saw the pound swing down 3 cents in a week against the euro and lose more against the US dollar so it was a prud3ent move to fix the rates in what could be a short lived rally.

After lunch, it was our friends across the atlantics turn with Canadian and US PMI’s coming out. Canada was as expected but the US came out at 59 compared to 56.2, giving further fuel to investors that the US is on the road to recovery, following hot on the heels of the announcement QE was finished with. We are still holding around the key resistance level but further positive data over the coming days could break that and a more sustained downside push by the dollar could be on the cards. For those businesses who buy from the Far East or anyone looking at the holiday home in the Florida sun, be aware things might be about to get more expensive!

Overnight we had Australian retail sales, trade balance and the RBA interest rate decision which saw an increase in retail sales, a drop in trade balance and no change to interest rate levels, all in all, giving the Aussie some grounds to strengthen overnight by nearly a cent against sterling.

This morning we look forward to UK construction PMI, EU inflation data in the form of the producer price index (PPI) and the European Commission’s economic growth forecast – definitely one to watch. After lunch Canadian import/export stats, US trade balance, Redbook index, factory orders and finally of note to round off the day as speech from Bank of Canada chief Stephen Poloz, which will be the first since last week’s quarterly monetary policy meeting where the Bank completely dropped their neutral stance on interest rates. Any hints at upcoming movement in their interest rates will bring immediate volatility so if you have a Loonie requirement, give one of the team here at CI a call before the 4.30pm speech.