UK Purchasing Managers Index (PMI) data for the construction sector in February came out weaker than expected hit badly by the heavy rain and floods last month. The sector showed expansion but slipped to 62.6 from 64.6 in January, which was the highest level for almost 7 years whilst house building grew at its slowest pace in 4 months. The real test will be how much of an impact these weaker figures have on the overall GDP figures, but it is fair to say there will be some negative impact on sterling. Construction on its own, accounts for approximately 7% of UK GDP.
This morning sees UK PMI data for February this time for the immensely bigger services sector. Expectation is for a small decrease to 58.0 from 58.3 but still showing expansion in the sector. With flooding at its worst in February then I feel there may be some added risk with this particular release and hence this poses a negative risk for sterling exchange rates this morning. There still remains some short term risk for the pound as a result of the floods whilst the true economic cost is calculated. Register for an account to access the best exchange rates by clicking here.
EU GDP is released this morning and certainly has the potential to create some market movement. Expectation is for a climb from 0.1% to 0.3% which would be taken as positive for the single currency. Considering the EU inflation figures from Friday came in better than expected, a good figure this morning would complement the slightly improved outlook and could result in some Euro strength. Retail sales are released at the same time with an improvement to 0.8% expected. There could be some short term gains for the Euro this morning on data that performs and which may present an opportunity for Euro sellers. The combination of weaker UK data and better EU data could see a move lower to test the 1.20 level.
After a lacklustre Tuesday this afternoon sees business conditions for February in the US non-manufacturing sector. Expectation is for expansion but with a small decline to 53.5 from 54.0 the previous month. The Fed’s beige book which reports on the current US situation and overall economic growth is also released this evening. If the mood continues to point to a general improvement then this should pave the way forward for dollar strength. Although not immediate, a move for GBP USD towards 1.62 should be on the horizon. The week finishes with Nonfarm payrolls where a big jump higher is expected which could be the trigger for better times for the dollar. For more information on how we can assist with a transfer of dollars then please click here.
**Breaking news ** Australian GDP numbers released overnight came in better than expected at 0.8% which should lend some support to the Aussie. The dollar does however look set for more volatility after the Reserve Bank of Australia (RBA) governor stated that the dollar “remains high by historical standards.” It would appear that although pleased with the weakness in the dollar the RBA would like it to weaken further. Having held rates steady this week it is unlikely they will cut next month, especially after better GDP but this recent rhetoric should help keep pressure on the dollar - There may be a little bit more room in the GBP AUD rally in the coming weeks. If you need to transfer money to Australia or have recently sold a property there then click here for more information.
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