Shock UK Services Decline Drives Pound Slump

Australian Dollar Traction Limited amid Mixed Messages on US-China Trade

Comments from Chinese President Xi Jinping helped to shore up the Australian Dollar ahead of the weekend, as markets continued to hope for further progress towards a phase one trade agreement. While Xi expressed a desire to work with the US to find a resolution to the current trade dispute, however, he also noted that China is still willing to ‘fight back’. This limited the scope for AUD exchange rate gains, with the risk of relations between the two sides souring still lingering.

Market risk appetite looks set to remain the primary driving force of AUD exchange rates today, given an absence of fresh domestic data.

Surprise Services Weakness Dents Pound

GBP exchange rates slumped during Friday’s European session in the wake of an unexpectedly weakened UK services PMI. As the index dropped from 50.0 to 48.6 this cast a fresh shadow over the health of the economic outlook, given that the service sector still accounts for more than three quarters of UK economic activity. Coupled with an equally weak manufacturing PMI this suggests that the UK may be on course for a fourth quarter growth contraction, leaving the Pound on the back foot.

Unless the CBI reported retail sales index can demonstrate a solid improvement on the month GBP exchange rates could remain under pressure this evening.

Euro Fails to Benefit from Improved German Manufacturing Data

A better-than-expected performance from the German manufacturing PMI offered limited support to the Euro. As the corresponding services PMI saw a surprise easing confidence in the outlook of the Eurozone’s powerhouse economy remained limited. With the manufacturing sector still in a state of deep decline, in spite of November’s modest improvement, the single currency struggled to gain any particular traction against its rivals.

Even so, a strengthening German IFO business climate index may encourage the Euro to pick up some ground tonight.

Positive PMIs Shore up US Dollar

Solid growth from both the US manufacturing and services PMIs helped to lift the US Dollar against its rivals ahead of the weekend. As both sectors demonstrated strong growth in November, shaking off ongoing trade tensions, the risk of a weaker fourth quarter performance from the US economy appeared to diminish. With market risk appetite also muted thanks to the lack of US-China trade progress the appeal of the US Dollar generally improved.

Any deterioration in the Chicago Fed national activity index could see USD exchange rates stumble overnight, though.

Retail Sales Contraction Weighs Down Canadian Dollar

As retail sales failed to rebound in September, showing a consistent decline of -0.1% on the month instead, the appeal of the Canadian Dollar proved muted. With consumers still taking a cautious outlook at the end of the third quarter investors remain wary of the possibility of a further slowdown in economic growth. Even so, thanks to the upbeat nature of recent Bank of Canada (BOC) commentary the bearishness of CAD exchange rates was limited.

If September’s wholesale trade sales data reverses some of the previous month’s decline this may offer the Canadian Dollar a boost.

New Zealand Dollar Momentum Limited

In spite of the mixed messages from US and Chinese officials over trade the New Zealand Dollar held onto a positive footing on Friday. Even so, NZD exchange rates struggled to make any particularly strong gains in the absence of fresh domestic data.

Ahead of tomorrow’s third quarter retail sales figures the mood towards the New Zealand Dollar could show some signs of souring.

Data Releases

November 25th 19:00 EU German IFO Business Climate Index (NOV) 95.0
November 25th 21:00 GBP CBI Reported Retail Sales (NOV) -4
November 25th 23:30 CAD Wholesale Trade Sales (MoM) (SEP) 0.7%
November 25th 23:30 USD Chicago Fed National Activity Index (OCT) -0.5

Louisa Heath