British Pound Sterling Live on Wed 2nd OCT: GBP Outlook Remains Bullish say OCBC, Construction PMI @09:28 Will Test UK Currency
The British Pound Sterling (Currency:GBP) today again saw a below-target PMI reading; however currency traders largely ignored this as the UK construction PMI is still in strong expansionary territory.
In the London afternoon session we see the Euro react favourably to the ECB press conference while the US Dollar is broadly sold off.
Foreign exchange at last update:
- The pound to euro foreign exchange rate is 0.12 pct lower than seen at last night's close at 1.1961.
- The pound to dollar foreign exchange rate is 0.28 pct higher at 1.6242.
- The pound to Australian dollar forex rate is 0.8 pct higher at 1.7377.
- The pound to New Zealand dollar foreign exchange rate is 0.78 pct higher at 1.99935.
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16:46: What to look out for on Thursday
Thursday brings the all-important Services PMI data.
It is worth noting that both the Construction and Manufacturing readings have had little impact on Sterling so the importance of the Services reading could be diminished when compared to previous months.
Analysts are expecting a reading of 60, down from last month's 60.5.
We expect another slight miss, as was the case with both Manufacturing and Construction.
16:06: A great day for the Euro
"Big jump in the euro today after ECB chief Mario Draghi said the central bank will consider all measures in its toolbox, including the effective LTRO scheme. The ECB earlier kept interest rates at record lows at the policy meeting and pledged commitment to keep rates at lows for an extended period.
"The euro has shot up to the $1.36 level against the US dollar, underpinned by Draghi’s comments as well as Italian PM Letta won a vote of confidence to remain as the PM in the grand coalition.
"Surprisingly, Silvio Berlusconi staged a dramatic U-turn by throwing his support to Letta after attempting to bring down the coalition government over the weekend by pulling out five of his ministers. Some stability in this Italian political episode but the market has been stunned by the absurd nature of Italian politics. Letta now has the difficult task of battling the high unemployment rate by generating jobs and implementing structural reforms to stimulate the ailing Italian economy."
14:40: Bank of England will have eyes on US government shut down
"If anything it is the UK that has more to worry about developments across the pond and this may be felt in the BoE’s decision next week."
Is this Carney's excuse to deliver bearish guidance and cool an appreciating pound?
14:11: Euro rally propels GBP/USD higher
The euro is rallying, taking the pound with it.
EUR/USD breaks new monthly high at 1.3590, "GBP/USD coming up on recent highs following the EURUSD spike," say WorldFirst.
A combination of an uneventful ECB press conference and the Italian confidence vote (see @13:36) have boosted the Euro.
14:04: Waiting for a deeper pullback before topping up on pound sterling
Matt Weller at GFT says he would like to see a deeper dip than that seen over the past 24 hours before buying sterling:
"The GBP/USD also pulled back over yesterday’s North American and today’s Asian session trade. As of writing however, the pair is showing signs of bouncing from 38.2% Fib retracement support at 1.6160. Overall rates remain in an uptrend, so buy trades are favoured in general, though we would prefer to see a deeper pullback to enter at a better value later on this week."
13:45: Buy the British pound on dips
Ipek Ozkardeskaya at Swissquote Research sees further GBP upside:
"GBPUSD sold-off to 1.6168 after reaching 1.6270 high. With GBPUSD comfortably in an expanded uptrend channel, clearance of 1.6179 resistance, thin supply zones above and momentum indicators in bullish territory we remain bullish. Downside should be limited so we would remain a buyer on dips, with our next target at 1.6343."
13:36: Italy's Letta wins vote of confidence
A euro-supportive event has just taken place in Italy.
Prime minister Enrico Letta and his government won a vote of confidence in the Italian senate.
The victory came as Silvio Berlusconi staged a dramatic last-minute retreat from his attempt to bring down Italy’s coalition government and said he and his party would back Letta.
11:55: All eye on ECB now
The big focus for currency markets today will be on the ECB meeting at 12:30 GMT.
"It will be interesting to see if Mr. Draghi tries to talk down the unit," says Boris Schlossberg at BK Asset Management.
Schlossberg goes on to say:
"Draghi has already mentioned the possible restart of the LTRO, but what may really send the EUR/USD tumbling is his focus on interest rates. With inflation well below target the ECB has the scope to ease further and if Mr, Draghi hints that the governing council may be open considering a rate cut the euro could quickly tumble. If on the other hand, Mr. Draghi sticks to the script and downplays the impact of the rising currency the EUR/USD could easily breach the 1.3600 level which has been a solid resistance point for nearly a three weeks."
10:45: Today's exchange rate outlook
For the full set of exchange rate forecasts from Emmanuel Ng at OCBC Bank please see here.
10:38: GBP to stabilise, outlook remains positive
Analysts at ICN Capital Markets have today told clients that the potential for a return to the upside remains:
"The pair dropped but remained limited above 88.6% correction at 1.6170, as stabilising above this level force us to keep our positive outlook.
"Linear Regression Indicators are positive supporting the possibility of bringing the upside move back. Of note, breaking 16100 and stabilising below it could weaken our intraday positive expectations today."
10:05: Why GBP has not been sold-off on another data miss
As we have said before - today's data is by no means disappointing as it shows the construction sector is well within growth territory. Analysts had just been a little too optimistic.
09:34: US non-farm payrolls cancelled
Big news for global financial markets. We knew it was highly likely but it is now confirmed.
Jonathan Pryor, Corporate Treasury Analyst at Investec comments on the cancellation of this month's all-important non-farm payroll release.
“The US Bureau of Labor Statistics confirmed it will not collect or issue economic data during the government shutdown which means the pivotal Non-Farm Payrolls data that were due to be delivered on Friday will be suspended.”
“The implication of this could be significant because if the shutdown runs into a second week, the US data releases will not provide a complete picture of the health of the US economy and thus cause further uncertainty around tapering at the end of the year.”
09:28: Construction PMI Below expectations but still strong
09:24: Sterling looking overextended
A warning for those considering pushing the GBP higher. Manoj Ladwa at ETX Capital says:
"Sterling continues to push higher at the expense of the Dollar, but is looking over-extended. The 1.63 area offers potential resistance and the opportunity to cover longs or possibly initiate short trades."
08:22: OCBC remain bullish on the outlook for British pound sterling
Emmanuel Ng at OCBC Bank ahead of today's construction PMI release:
"Markets are likely to look towards the construction PMI due today for further cues. As noted previously, we continue to stay constructive on the GBP-USD in the current circumstances and any breach above 1.6200 may see a test towards 1.6230 while supports are seen on dips towards 1.6160 and then 1.6100."
08:19: Pound's major test of the day comes at 09:28
The next instillment of the Markit PMI series comes at 09:28 today with the release of the Construction PMI release.
59.2 is the consensus estimate. Last month we saw a reading of 59.1.
Yesterday we saw a strong reading in the Manufacturing PMI release, however it did miss expectations but the British pound sterling was unmoved.
08:09: Markets measured reaction to US government shut down is right say Barclays
Barclays analyst Ajay Rajadhyaksha says he believes the market reaction to the event is the right one:
"The US government has shut down, with Congress failing to pass a continuing resolution (CR) that would keep the government running.
"It seems logical to conclude that the current political crisis over the CR reduces the chance of a new political crisis over the debt ceiling.
"The logic is that a shutdown now allows politicians to make their point to their core constituencies and sparks enough of a backlash from the country that Congress avoids a new crisis a couple of weeks later over the debt ceiling.
"It is always possible that if the shutdown continues beyond a few days, attitudes harden on both sides of the political aisle, making the debt ceiling debate more contentious.
"But for now, the markets seem to believe that this shutdown will cause a minor disruption and will, at the very least, not worsen the debt ceiling negotiations – and we agree."
08:06: UK manufacturing powers ahead
The British Pound Sterling (Currency:GBP) remained well bid.
Tai Shapsa at Barcalys comments:
"The UK manufacturing PMI declined slightly, to 56.7 from 57.1 in August, but remained still at an environment of solid pace of expansion in manufacturing activity (and well above the series' long-term average).
"After the August reading, this release is the strongest since February 2011 and brings the Q3 average to 56.2, significantly above the Q2 average of 51.9.
"The new orders less inventories series remained at very high level of 14.6, 2 points less than the pace in August but still much stronger than the series average.
"This was due to very strong new orders (albeit slightly lower than the pace in August at 59.3 versus 61.5 then), which marked a record-high Q3 average of 59.7, the strongest since Q3 1994."