Weekly FX Update

Sterling (GBP) Movement Mixed Since Dire UK PMIs

Pound Sterling (GBP)

The Pound fluctuated widely throughout last week in all pairings before eventually ending the week a little flatly. Friday’s session saw the first flash PMIs for the month of July. These reports were highly anticipated as they would offer an indication of how Britain’s work sectors had coped with the Brexit vote, held over a month ago.

These PMIs came in even worse than the bearish projections set for them, indicating that the Brexit had caused more damage to the UK economy than expected. Manufacturing dropped from 52.1 to 49.1, Services fell from 52.3 to 47.4 and the overall Composite PMI plunged from 52.4 to a low 47.7. Analysts now fear that the contraction of Britain’s economy could continue in coming months, which could lead to a recession.

Sterling trended a little more flatly on Monday, but attempted to gain against some of its major rivals.

US Dollar (USD)

The Pound to US Dollar exchange rate plummeted during Friday’s session and ended up hovering around levels near 1.31.

Favour towards the US Dollar remained strong throughout last week and the currency continued showing resilience on Monday. New data continued to indicate that the US economy remained in good health despite recent political and economic struggles in the global economy. This has slightly increased Federal Reserve rate hike bets, with investors now more likely to expect that the US economy will continue to be sturdy throughout the year.

However, markets do not expect the Fed to increase the key interest rate when the Federal Open Market Committee (FOMC) meets later this week. Bets of a July rate hike plummeted to zero once Britain voted to leave the European Union in June due to downside risks. Assuming the FOMC leaves US rates frozen when it meets on Wednesday, the US Dollar could fall as investors look for riskier investments more likely to lead to profit.

Euro (EUR)

The Euro experienced mixed movement for much of last week’s session, largely caught in cross-flows of its biggest major rivals, like the Pound and the US Dollar. Friday’s session however was a considerable boost to the shared currency. Markit’s preliminary July PMI scores for the Eurozone were released shortly before the UK’s and, for the most part, came in above expectations.

All key scores came above the essential 50 point cusp between contraction and growth. Eurozone Manufacturing disappointed investors by 0.1 point, coming in at 51.9. Services slipped from 52.8 to 52.7, but the Composite score of 52.9 was well above the expected 52.5. Germany’s scores were even more impressive than expected, beating expectations in every print and improving month-on-month in Services and the overall Composite score.

As markets had previously feared that the Eurozone could be just as affected by the Brexit as the UK (if not more so), news that the Eurozone’s economy had remained resilient despite its own domestic issues bolstered appeal of the shared currency.

Australian Dollar (AUD)

The Pound to Australian Dollar exchange rate gained last week due to a plummet in ‘Aussie’ appeal. The Reserve Bank of Australia’s (RBA) latest minutes release undermined AUD as the bank indicated that poor Q2 inflation and an overvalued Australian Dollar could lead to an August interest rate cut.

As a result, Wednesday morning’s session is vital for Australian Dollar traders this week. Australia’s Q2 inflation scores will be released during Wednesday’s Asian session and are likely to be the key determining factor on whether or not the RBA will cut the key interest rate next week. Currently, analysts estimate quarterly inflation will improve from -0.2% to 0.4%. If scores come in worse than this or reveal another quarterly contraction, RBA rate cut bets could soar and the ‘Aussie’ Dollar may plummet.

New Zealand Dollar (NZD)

The New Zealand Dollar has been comparatively weak recently, like its Australian peer. However, GBP/NZD dropped considerably on Friday due to Britain’s latest economic news, allowing the ‘Kiwi’ to regain some ground.

The Reserve Bank of New Zealand (RBNZ) is currently highly expected to be planning to cut the key New Zealand interest rate in its next meeting on the 11th of August. Bets of a rate cut have soared over the last two weeks as the RBNZ announced (and delivered) a sudden economic assessment. The announcement and assessment itself indicated to markets that New Zealand’s economy was struggling since June’s meeting and that a rate cut was likely in the near future. The ‘Kiwi’ may remain pressured this week as a result.

Canadian Dollar (CAD)

Low risk sentiment as well as low prices of oil allowed the Pound to Canadian Dollar exchange rate to improve during last week’s session.

The oil-correlated Canadian Dollar has come under strain in recent weeks as oil prices remain low and fail all attempts at recovery.

However, some Canadian economic news has been more optimistic. The Canadian economy has proven itself stronger than most in the face of global economic headwinds and following Britain’s vote to leave the European Union.

Disclaimer: This update is provided by TorFX, a leading foreign exchange broker, its content is authorised for reuse by affiliates.