Yesterday proved to be a choppy opening to the month in FX markets most major currency pairs covered Friday’s ranges through yesterday’s trading with GBPUSD, EURUSD, USDJPY and EURGBP all covering their Friday moves. The economic docket was mixed though yesterday’s session, slowing manufacturing data across Europe put the single currency under some pressure early on, while better than expected Manufacturing figures from the UK helped give GBP an early lift. In the US manufacturing was better than expected but the inflation component of the indicator took a huge drop, resulting in USD selling with the greenback finishing the day lower. In US markets stocks declined while commodity markets rebounded with both gold and oil posting intraday rallies from recent lows.
Overnight risk appetite appears well supported with Asian equities pushing higher while the JPY faced selling pressures once again against the USD, pushing back towards recent highs above 119.00. Overnight one of the biggest initial losers was the AUD, which fell to 4 year lows against the greenback ahead of last night’s RBA meeting before rebounding higher. The RBA decided to maintain current interest rates at 2.50% and their tone was relatively neutral which helped lift the Aussie off the lows, however markets are looking to price in rates cuts from the RBA in 2015 which will likely lead to further AUD weakness should data continue to be to the low side. European equity markets have started the day in positive territory while the EUR has faced selling from the open this morning.
There are a number of major releases to focus on this week as well as some key central bank meetings. GBP is unlikely to find much volatility around Thursday’s BOE meeting, with no change expected the status quo is likely to be observed and we will receive no update on the tone of the MPC meeting until we get the minutes in a couple of weeks. Yesterday’s better than expected manufacturing PMI print helped lift the pound, with further support coming from mortgage approval and lending data. Manufacturing expanded with a print of 53.5 in the PMI versus an expected 53.0 Construction data crosses the wires from the UK with PMI services due for release tomorrow. The tone from the BOE has been relatively downbeat of late and this has been factored into expectations on data and the value of GBP, should data surprise to the upside (as much UK data has over the last two weeks) we would expected additional GBP strength through the week. It is worth noting that the BOE have said their next policy step will be rate hikes, not additional easing so recent GBP lows seem a little extreme.
The EUR tested towards 1.2500 yesterday against the USD but failed to break the figure, after dropping early in the morning the single currency rallied, supported by USD weakness in the afternoon. The manufacturing print for the region paints a rather bleak picture however, and despite expectations remaining low for the Eurozone, with further ECB easing expected the EUR will not be able to stave off weakness should data continue to print to the downside. Today’s European data is topped by PPI figures which are both due to fall, in line with declining price pressures across the region. The big event for the EUR will be Thursday’s ECB meeting, while tomorrow provides us with PMI data. EUR strength will continue to be capped by the expectations of ECB easing, and we would expect Mario Draghi to once again be vocal on supporting the region and doing whatever is necessary, exact details of the ECB’s program should see the single currency under selling pressure, but we will warn of short term potential upside in EUR pairs if the ECB fails to meet the markets expectations.