Brexit Worries Weigh Down Pound

PAPHOS, Cyprus - Oct. 3, 2017 - PRLog -- Pound Sterling – UK Markets

Sterling has slipped against the US Dollar, with the exchange rate set at $1.32. Sterling slid against the Euro with the exchange rate set at €1.13.

Today's Markit Construction Purchasing Managers Index (PMI) shows a sharp fall in building sector growth from 51.1 in August to a 14-month low of 48.1 in September. This is more worrying than the expected slowdown to 50.8, because any reading under 50 indicates contraction. September is the first month to have contraction in growth since July 2016. The decrease in commercial building indicates less business investment, caused by Brexit uncertainties.

Yesterday's Manufacturing PMI showed that the UK factory output slowed down by more than had been expected, which contributed to the Pound slipping. The services sector is expected to continue unchanged with a reading of 53.2 when the Services PMI is released tomorrow.

US Dollar – US Markets

The US Dollar performed well against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY) is slightly higher, at 93.54.

The US Dollar rose to its highest level in a month in the Asian Pacific markets, as the Australian Dollar and New Zealand Dollar fell after the Reserve Bank of Australia's policy announcement. The Japanese Yen also slipped against the US Dollar as investors anticipate that the US Federal Reserve (Fed) will soon raise interest rates. CME's Fedwatch indicator had set the odds of a rate hike at 42% last month, and they now project a 71% likelihood of a December increase.

"Until we see a fresh commitment from the European Central Bank to scale back its policy stimulus, the Dollar will continue to gain against the Euro," noted a Commerzbank analyst. The Dollar is at its highest levels since 17 August, but it is 8% weaker for the year and facing its largest annual decline in a decade.

Euro – European Markets

The Euro is rising against the US Dollar with the exchange rate at €1.17. The Euro strengthened against the Pound, trading at €0.88.

Addressing the European Parliament today, Michel Barnier, the EU's chief negotiator, said that the progress made was insufficient, making it difficult to move ahead this month with discussions of a future trade deal between the UK and the EU. Barnier noted, "There are still serious divergences, in particular on the financial settlement."

Other Currencies – Highlights

The Pound rose against the Australian Dollar, with the exchange rate at 1.69 AUD. There was little reason to expect the Reserve Bank of Australia (RBA) to announce any changes to their monetary policy at their meeting today. The RBA is not expected to adjust Australia's interest rates from 1.5% until February of 2018, at the earliest, suggest market analysts. On Thursday, Australia's trade balance is expected to show an August surplus of $0.9 billion due to increased volumes of exported iron ore.

The Pound picked up a little ground to the New Zealand Dollar, trading at 1.85 NZD. Both the Kiwi and the Australian Dollar fell against the US Dollar after the RBA Governor Philip Lowe commented that "an appreciating exchange rate would be expected to result in a lower pick-up in economic activity and inflation than currently forecast." The New Zealand Institute of Economic Research (NZIER) Business Confidence report was released yesterday. The third quarter reading of 5% was a drop from the second quarter figure of 18%. The September reading had reflected political nervousness across all sectors of business ahead of the 23 September general election.

Sterling rose against the Japanese Yen, trading at ¥150.17. The Yen was not strengthened in spite of a better than expected Tankan business survey released by the Bank of Japan (BoJ). The large manufacturing index rose to 22, the highest level seen in a decade. Small manufacturing output was at its highest levels since 2006. The Yen hasn't been moved by economic data, no matter how positive, because inflation is at 0.7% and the BoJ remains focused on a figure of 2% inflation before adjusting their monetary policy. On 22 October, Japanese voters head to the polls for the snap election called by prime minister Shinzo Abe who has gained approval in polls for his tough stance against North Korea.

US Dollar – US Markets

The dollar's strong drive after President Trump's election has hit a wall. Wall Street suffered its worst day of the year yesterday, with financial stocks, in particular, seeing a huge sell-off. In Trump's haste to replace Obama's Affordable Care Act, the Republicans have produced a bill that's unlikely to pass tomorrow's vote. Republicans aren't likely to endorse the healthcare plan that a Congressional Budget Office review found would cost 24 million Americans their healthcare insurance over the next decade. The healthcare bill is the biggest event for the Republican party this year, however, that's unlikely to convince moderate party members to vote for a bill that was given last minute amendments to increase its appeal to hard-line conservatives.

Euro – European Markets

The euro hit a 6-week high against the dollar, yesterday, after Emmanuel Macron's strong performance in the French election debate. In an opinion poll taken after the debate, Macron came out as the clear favourite in an election that's critical to the Eurozone. Anti-euro populist candidate Marine Le Pen is still expected to make it through the first round which is set for 23 April. It's not clear who, along with Macron, will be one of the final 2 candidates on the 7 May, runoff.