Sterling hits eleven month highs after manufacturing rebound

uesday’s manufacturing business activity PMI jumped to 55.1 in July from 54.2 in June with the biggest surge in export orders in seven years lifting the index from its lowest level since November 2016. Job creation was also among its strongest readings in the past three years with the near one year low rate of Sterling against the Euro clearly providing a boost to UK manufacturers.

This morning’s construction PMI is unlikely to shift the Pound given its minimal contribution to overall GDP. We instead await Thursday’s monetary policy meeting from the Bank of England, including the Quarterly Inflation report. With interest rates certain to remain unchanged, investors will instead be looking to see whether the central bank validates recent hawkishness shown by a number of policymakers and hints that a rate hike is on the horizon. However, given the latest unexpectedly weak inflation data, the market may be disappointed.

Inflation pick-up boosts Fed rate hike chances

A jam packed economic calendar in the US proved mostly positive for the Dollar yesterday, which edged off its one year low in trade-weighted terms.

Inflation news out of the US on Tuesday provided a lift for those hoping for a sooner-rather-than later interest rate hike by the Federal Reserve. The PCE index, the Fed’s preferred measure of consumer price growth, increased unexpectedly to 1.4% in the year to June with May’s number also revised upwards to 1.5%. This was somewhat offset by ISM’s manufacturing PMI coming in at a modestly disappointing 56.3 versus the 56.5 consensus.

FOMC members Mester and Williams will be speaking in the US this evening and could provide some clarity over the Fed’s plans to continue raising interest rates at a gradual pace. Friday’s nonfarm payroll release remains the most significant economic announcement on the data calendar this week.

Euro edges off two-and-a-half year high

The common currency edged off its strongest position against the Dollar since early 2015 yesterday as investors took a breather from relentlessly selling off the greenback. Tuesday’s manufacturing data from Markit also did little to support the Euro. The monthly index came in at a slightly below forecast 56.6 following a slowdown in both Germany and France, albeit remaining well above the recent average. Preliminary GDP numbers were also fairly encouraging. The Eurozone economy grew by 0.6% in the three months to June, again outpacing the economies of both the US and UK.

Producer inflation data this morning is unlikely to quell the recent rally in the Euro if it surprises to the downside. Euro traders will instead look to Thursday’s retail sales and composite PMI as the next beg event risk for the currency.