Pound Extends Losses as UK Manufacturing PMI Disappoints

Australian Dollar Struggles to Benefit from Stronger Manufacturing PMI

A surprise improvement in February’s manufacturing PMI gave the Australian Dollar support ahead of the weekend. This helped to limit the downside bias of AUD exchange rates even as the general sense of market risk appetite deteriorated ahead of the weekend. As the Chinese manufacturing sector continued to contract this dented demand for the commodity-correlated Australian Dollar, with confidence in the outlook of the global economy faltering.

If the fourth quarter TD Securities inflation measure points towards an uptick in price pressures, though, this could encourage AUD exchange rates to gain fresh ground today.

UK Manufacturing Slowdown Limits Pound Appeal

The mood towards the Pound soured on Friday as the UK manufacturing sector continued to show signs of a slowdown. As February’s PMI eased from 52.6 to 52.0 this offered fresh evidence of the negative impact of Brexit-based uncertainty. Even though businesses continued to stockpile this was not enough to fuel fresh growth in the sector, with the underlying details of the survey still painting a discouraging picture.

A similarly underwhelming performance from tonight’s UK construction PMI could see GBP exchange rates extending their downtrend further.

Euro Benefits from German Retail Sales Rebound

January’s German retail sales data offered the Euro cause for confidence as the figure surged 3.3% on the month, reversing December’s contraction. This suggests that domestic sentiment within the Eurozone’s powerhouse economy picked up at the start of the year, buoying hopes of a stronger first quarter gross domestic product. The uptick in February’s Eurozone consumer price index also gave EUR exchange rates a boost, in spite of the disappointing nature of the latest manufacturing PMIs.

If the Eurozone producer price index points towards stronger inflationary pressure within the currency union the appeal of the Euro is likely to improve.

Weakened Manufacturing Sector Weighs on US Dollar

As the US personal consumption expenditure core held steady on the year in December this gave USD exchange rates a leg up. However, confidence in the strength of the US economy took a dent as February’s ISM manufacturing index unexpectedly plunged from 56.6 to 54.2. While this still demonstrates solid sector expansion the decline suggests that momentum has slowed in the face of global trade tensions. While this was not enough to knock the US Dollar off its stronger footing the disappointing data still limited its potential gains.

As long as market risk appetite remains muted USD exchange rates are likely to maintain a positive bias.

Dramatic Canadian Growth Slowdown Drags Canadian Dollar Lower

Although investors had anticipated a slowdown in Canadian growth they were still caught off guard by the extent of the decline on display in the fourth quarter gross domestic product data. As the economy only achieved growth of 0.1% in the final three months of 2018 this raised concerns over the likelihood of a future recession. With markets now eying up the odds of the Bank of Canada (BOC) cutting interest rates in the months ahead CAD exchange rates were left in a slump.

The mood towards the Canadian Dollar is unlikely to see any significant improvement in the near term.

New Zealand Dollar Shakes off Sharp Decline in Terms of Trade

The fourth quarter terms of trade index offered the New Zealand Dollar nothing in the way of support, showing a sharp -3% contraction on the quarter. This latest decline suggests that the domestic trade outlook remains weak, especially in the face of deteriorating global growth and trade. Even so, a sharp uptick in January’s building permits figure helped to limit any NZD exchange rate softness on Friday.

However, the New Zealand Dollar remains vulnerable to any deterioration in global market sentiment today.

Data Releases

March 4th 11:00 AUD TD Securities Inflation (YoY) (4Q)
March 4th 20:30 GBP Construction PMI (FEB) 50.1
March 4th 21:00 EUR Eurozone Producer Price Index (YoY) (JAN) 2.9%

Louisa Heath

louisa.heath@torfx.com


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