Pound on Back Foot Following Surprise UK Inflation Dip

Australian Dollar (AUD) Gains Traction as PMIs Strengthen

The Australian Dollar (AUD) picked up in response to the strong performance of March’s manufacturing and services PMIs.

While forecasts had pointed towards both indexes picking up on the month, markets were still encouraged as the data bettered forecast. With the manufacturing and service sectors showing strong growth momentum at the end of the first quarter, worries over the wider economic outlook took a backseat.

In the absence of any fresh economic data releases, though, the Australian Dollar may struggle to hold onto its positive momentum in the days ahead.

Pound (GBP) Slides Thanks to Weaker UK Inflation Rate

The Pound (GBP) extended its losses as the UK inflation rate failed to pick up as forecast in February.

As the headline inflation rate dipped from 0.7% in January to 0.4% on the year in February, this left investors with little incentive to buy into the Pound. Although March’s services PMI surpassed forecasts, leaping from 49.5 to 56.8, this was not enough to offer GBP exchange rates any boost for the time being.

However, with forecasts pointing towards an uptick in the CBI distributive trends orders index, the mood towards the Pound could improve this evening.

Euro (EUR) Shored Up as Eurozone PMIs Show Improvement

The Euro (EUR) saw limited upside potential in the wake of a better-than-expected set of Eurozone manufacturing and services PMIs.

While the service sector remained in a state of negative growth in March, with the PMI clocking in at 48.8, this still represented an improvement on the month. The manufacturing sector also reported solid growth across the board, helping the single currency hold onto a generally positive footing.

If the Germany GfK consumer confidence index picks up as anticipated, this may give EUR exchange rates an extra boost.

US Dollar (USD) Support Falters as Durable Goods Orders Disappoint

The US Dollar (USD) saw some of its support weaken in response to February’s disappointing durable goods orders index.

As durable goods orders plunged -1.1% on the month, rather than just showing a modest slowdown in growth, this cast fresh doubt over the strength of the economic outlook. Even so, as the Markit manufacturing and services PMIs both showed solid growth on the month, this helped to keep a floor under the US Dollar.

With forecasts pointing towards a smaller weekly increase in initial jobless claims, the mood towards the US Dollar could improve overnight.

Canadian Dollar (CAD) Boosted by Suez Canal Blockage

The Canadian Dollar (CAD) rallied on the back of the latest rally in global oil prices, benefitting from the Suez Canal blockage.

In the wake of the container ship running aground and halting traffic flows through the canal, demand for oil picked up sharply, capitalising on the prospect of a temporary disruption in global supply. This helped to overshadow the impact of another negative month of Canadian manufacturing sales data.

However, any renewed decline in the oil market could see CAD exchange rates rapidly reversing their latest gains.

New Zealand Dollar (NZD) Under Pressure in Spite of Trade Surplus

The New Zealand Dollar (NZD) remained under pressure even as February’s trade balance showed a return to a state of surplus.

With the Reserve Bank of New Zealand (RBNZ) looking set to leave monetary policy on hold for the foreseeable future, the appeal of the ‘Kiwi’ proved generally muted, especially as market risk appetite diminished. Although exports showed solid growth in February, this was not enough to encourage any NZD exchange rate gains.

As long as worries over the future of the global economic recovery linger, this may keep the New Zealand Dollar biased to the downside.

Data Releases

18:00 EUR Germany GfK Consumer Confidence Index (Apr) -11.9
22:00 GBP CBI Distributive Trades Index (Mar) -37
23:30 USD Initial Jobless Claims (20/Mar) 730,000

Louisa Heath