Sterling Suffers as Construction PMI Disappoints, But Gains vs Euro Recorded

The pound sterling has lost ground against the US dollar and other majors as the second PMI release of January comes in below expectations.

Construction PMI for December read at 57.6, analysts were expecting a reading of 59. The disappointing data from the construction sector follows that of the manufacturing sector, released on Friday.

The impact on the GBP is as follows:

• The pound to euro exchange rate is 0.25 pct higher on a day-on-day comparison, GBP/EUR is at 1.2804.
• The pound to dollar exchange rate is 0.13 pct lower at 1.5307.
• The pound to Australian dollar exchange rate is 0.05 pct lower at 1.5307.

As we can see sterling is advancing quite comfortably against the euro despite the disappointing data.

It appears that the euro is in the driving seat at the start of the first full week of 2015 with a break below 1.20 against the US dollar seeing an all-round routing of the shared currency.

Expect action in EUR/USD to continue driving sentiment in EUR/GBP.

Construction Sector Growth Slows

The strength in the recovery of the UK construction sector moderated further from the peaks seen earlier in 2014.

However, currency traders have not punished sterling as data remains robust.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI tells us:

“A sharp recovery in house building, as well as resurgent demand for commercial development projects, continued to boost staff recruitment and sub-contractor pay rates across the construction sector in December.

“UK construction output growth retreated further in December, but another strong expansion of house building activity ensured that the sector continued to perform impressively overall. Indeed, over the course of 2014, UK construction firms recorded the strongest calendar year of residential building since the survey began in 1997."

All eyes now turn to the Service PMI due for release on Tuesday; the services sector is by far the largest component of the UK economy and should thus have a greater bearing on the GBP.

Euro Dollar Exchange Rate Breaks Below 1.20

The big news on currency markets at the present time is however the deterioration in the value of the euro.

A break below support at 1.20 has tongues wagging, Ipek Ozkardeskaya at Swissquote Bank says:

"The EUR made a heavy start to the week on worrying news around Greece and hiking speculations that the ECB moves closer to full-blown QE. EUR/USD rallied on stops after breaking 1.20, plunged to 1.1864 – a 9-year low, and rapidly bounced back above 1.1900. German Chancellor Merkel said the Euro-zone can well cope with the Grexit, according to Der Spiegel.

"The sentiment in EUR remains solidly negative as the EUR/USD steps in oversold territories (RSI at 26%, lower Bollinger Band at 1.1998).

"A correction is certainly underway, yet the upside should stay limited as traders look to sell the rallies. The aggressive EUR sell-off pulled EUR/JPY to 143.16. The pair trades comfortably within the Ichimoku cloud (141.64/145.11). The daily base and conversion line point deeper downside correction as JPY anxieties cool-off."