Euro area PMI's likely to weigh on the single currency

Today's Highlights

Reserve bank of Australia leave rates on hold

UK service sector PMI the focus this morning

FX Market Overview

Overnight the Reserve bank of Australia unsurprisingly left interest rates on hold at 2.5% for another month. Governor Stevens noted that the most prudent course is likely to be a period of stability with growth to be a little below trend over the year ahead. The Central bank looked past the recent rise in inflation stating that wage growth should keep inflation consistent with its target over the next couple of years. They also reiterated that the exchange rate was high by historical standards. Thursday's unemployment report is likely to be the main driver of the Australian dollar in the short term.

The Euro will be in focus this morning with release of service sector PMI's from around the Eurozone. There are unlikely to be significant revisions which along with an expected fall in retail sales may weigh on the single currency. Investors are concerned over the lack of growth momentum which will only be exacerbated by the geo-political tensions in Russia and the Ukraine. The euro will remain under pressure leading into this week's ECB policy meeting where unconventional measures , although probably too early to be implemented , will surely be discussed.

Construction PMI in the UK fell to 62.4 from 62.6 yesterday. A number above 50 denotes expansion in the sector so this was obviously a strong reading. House building is now accelerating at its highest pace in 11 years. This was a relief after last week's disappointing manufacturing data. This morning brings the service sector PMI which is closely watched as the service industry accounts for over 60% of the UK economy. A reading of around 58.0 is expected and another disappointment could see the Pound make new lows. The divergent monetary policy expectations between the UK and Europe should still see the Pound eventually gain versus the Euro but in the short term some consolidation may be in order.

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