Key US Manufacturing data is focus today

So far this week there has been very little to whet the appetite in terms of fundamental data from the UK, and yesterday was no exception, with the only release being the CB Leading Index, aimed at predicting the future direction of the UK economy. And, as such, any gains or losses sustained by the pound against its peers were largely due to events elsewhere, especially given the three way tug of war it seems to be involved in against the euro and the dollar. The pound traded within a 112 point range against the dollar and a 98 point range against the euro, topping out at GBP/USD 1.4812 interbank (IB) and GBP/EUR 1.3951 (IB) respectively as traders and investors weigh up the pros and cons of the most torn UK election we have ever seen, a potential ‘Grexit’, and the much reported US interest rate increase. What is certain is that the fluctuations are set to continue, however, the uncertainty with the pound at present is in which direction. No data is due today from the UK and, as such, we will look towards key US data due in the afternoon for the main movement of the day. Tier one labour market data is due on Friday from the UK so any stability in the pound seen today should be capitalised upon.

Evidently, the pressures felt throughout Europe are starting to take their toll and, rather than the usual response to the ECB press conference in terms of market volatility, we yesterday saw one euro resident take a slightly different approach by attacking ECB President, Mario Draghi, with confetti whilst wearing a t‐shirt emblazoned with the slogan: “End the ECB dictatorship”. Despite this, Draghi gave a glowing review of the QE program that was implemented last month, claiming that there was “clear evidence that the monetary policy measures we’ve put in place are effective”. The euro seemed buoyed by this as it gained key ground previously lost against both the pound and the dollar over the middle part of the London session, especially given that interest rates were left on hold as per expectation. However, Draghi failed to assure investors over the Greek issue and it is this that many feel will contribute to the demise of the euro over the second half of the year. Simply dismissing a Greek default verbally is one thing; seeing that come to fruition is quite another. And so, ground gained in the middle of the day by the single currency was largely clawed back by its peers as the market consensus of a weaker euro over time seems to be upheld. Italian Trade Balance data due at 9.00 this morning is the only release from the bloc, however, it is worth mentioning that today is day one of the G20 meetings and, of course, as with the pound, key US data due this afternoon will surely contribute to market movements.

The US suffered another weak round of data yesterday afternoon with Empire State Manufacturing printing well behind the expected 7.2 at ‐1.2, Capacity Utilisation Rate (inflation indicator) ticked down to 78.4%, and month‐on‐month Industrial Production figures came in at ‐0.6% against the forecast ‐0.3%. This comes only two weeks after the disappointing non‐farm payroll figures showed a decline in the labour market that was ultimately blamed on bad weather and, on paper, would appear to be relatively bad news for the US. However, contextually speaking, this really only tells half a story. Homebuilder sentiment has risen for the first time in 5 months, the US service sector is doing as well as it has ever done with more Americans spending money on dining out than on groceries, and there is a call throughout the majority of US states for an increase in the minimum wage. Such facts don’t give you the impression of a struggling economy, far from it. The problem faced by the policy makers Stateside is when, not if, to raise the interest rates, as globally the impact of doing so will be huge and so, for now, the two steps forward, one step back progress that the dollar is making is probably going to be the status quo. Key tier one data is due this afternoon from the US. Building Permits data is expected to print at 1.08m, Unemployment claims are expected to tick up to 284K from 281K the month before, and Philly Fed Manufacturing is expected to print at 6.5. Overall forecasts on the dollar are GBP/USD Q3 1.39 GBP/EUR Q3 1.00.