Pound Stumbles as UK Productivity Remains in Decline

Construction PMI Improve Offers Australian Dollar Support

June’s Australian construction PMI offered some encouragement to AUD exchange rates ahead of the weekend, even though the index remained in contraction territory. As the PMI picked up from 40.4 to 43.0 this suggests that the sector is moving in the right direction once again, easing worries over the economic outlook. However, the strong US jobs report saw the Australian Dollar fall out of favour during the day’s European session.

Unless market risk appetite bounces back today AUD exchange rates look set to remain on a weaker footing in the near term.

Disappointing Labour Productivity Drags Down Pound

Confidence in the outlook of the UK economy continued to decline on Friday after the first quarter labour productivity data missed forecasts. In another disappointing development productivity declined -0.2% in the first three months of 2019, highlighting a continued lack of business investment and pointing towards weaker wage growth. This decline in productivity added to anxiety over the economic outlook, raising the risk of a second quarter growth contraction and dragging on GBP exchange rates.

The latest developments surrounding the Conservative leadership contest may drive further volatility for the Pound today.

Euro Slides as German Factory Orders Drop

The German economy showed fresh signs of weakness as May’s factory orders figures fell sharply short of forecast. As orders plunged -8.6% on the year, reflecting the decline in international trade demand, this left the Euro on a weaker footing against its rivals. This sharp deterioration does not bode well for the outlook of the German manufacturing sector, or the health of the Eurozone’s powerhouse economy as a whole.

A narrowing of the German trade surplus could put additional pressure on EUR exchange rates this afternoon as fears of a potential recession grow.

Strong Jobs Report Drives US Dollar Gains

USD exchange rates rallied as the latest non-farm payrolls report bettered expectations to deliver a solid increase in the headline employment figure. With 224,000 new jobs added to the US economy in June investors were given fresh incentive to buy into the US Dollar ahead of the weekend. Even so, the corresponding uptick in the unemployment rate suggests that the Federal Reserve is still likely on track to cut interest rates in the near future.

An increase in consumer credit may help to boost the US Dollar further tonight, in spite of the high odds of an imminent Fed interest rate cut.

Wage Growth Uptick Boosts Canadian Dollar

An uptick in the Canadian unemployment rate was not enough to dent CAD exchange rates last week, even though the labour market saw a decrease in jobs on the month. Investors instead focused on a solid improvement in the latest hourly wage growth data. As wage growth accelerated from 2.6% to 3.6% in the last month this offered the Canadian Dollar a boost, giving the Bank of Canada (BOC) greater cause for confidence.

As long as oil prices remain on a positive trend this could keep CAD exchange rates on an uptrend today.

Lack of Data Keeps New Zealand Dollar Under Pressure

NZD exchange rates remained under pressure ahead of the weekend thanks to a continued absence of fresh domestic data. With the Federal Reserve appearing increasingly on course to cut interest rates in the months ahead the risk of further Reserve Bank of New Zealand (RBNZ) easing remains.

If market risk appetite recovers from Friday’s strong US jobs data, though, this may offer the New Zealand Dollar a temporary boost.

Data Releases

July 8th 16:00 EUR German Trade Balance (MAY) 15.9 billion
July 9th 05:00 USD Consumer Credit (MAY) 16 billion

Louisa Heath

louisa.heath@torfx.com


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