Pound struggles after ‘Super Thursday’ tumble

Yesterday’s Bank of England (BoE) ‘Super Thursday’ was anything but (although it was still a Thursday). The pound tumbled after a pessimistic display from policymakers and continues to trend around the day’s closing lows this morning.

GBP/EUR remains at a new post-referendum low of €1.1064, while GBP/USD is at US$1.3148 after it slipped from its 11-month peak. GBP/AUD has fallen -0.1% to AU$1.6500, while GBP/NZD has climbed 0.2% to NZ$1.7686. GBP/CAD remains around opening levels of CA$1.6515.

A lack of data leaves the pound to lick its wounds today, but a key release from the US could disrupt the entire market. Keep reading for the ‘what’ and the ‘why’…

What’s been happening?

What hasn’t been happening? The Monetary Policy Committee (MPC) left interest rates on hold yesterday, Andy Haldane switched back to being a pessimist, only two policymakers backed a hike, newbie Silvana Tenreyro was cautious as expected and GDP and wage forecasts were cut.

Unsurprisingly the pound tumbled, crashing to a new post-referendum low against the euro and falling off the one-year peak hit recently against the US dollar.

A marginally better-than-forecast UK services PMI, which rose from 53.4 to 53.8, wasn’t enough to slow the pound’s decline.

While GBP/EUR may have slumped, the euro was not doing so well elsewhere, thanks to a series of fairly middle-of-the-road PMI results.

Previous services and composite PMIs were largely revised lower on previous estimates, showing that the Eurozone’s economic growth slowed marginally at the beginning of the third quarter.

The US dollar was also weakened thanks to a services PMI release. The ISM non-composite index fell from 57.4 to 53.9, instead of weakening to 56.9 as forecast. This has weakened the odds of another interest rate hike from the Federal Reserve this year.

What's coming up?

There is nothing of note on the UK economic calendar today, leaving markets to continue digesting the disappointing raft of developments that unfolded on ‘Super Thursday’. This is likely to leave the pound on weak form.

Data from the Eurozone consists of the German factory orders data, the German construction PMI and retail PMIs from France, Germany, Italy and the Eurozone as a whole.

The euro will be heavily affected by the day’s US data, so domestic figures may be largely overlooked.

The biggest event of the day will be the release of US non-farm payroll figures for July. These are one of the most influential data releases used by the Fed to gauge whether the economy is healthy enough to handle higher interest rates.

A strong result from the payrolls and unemployment data would therefore lift the odds of a rate hike this year, while a weak figure will see bets of furthering increases slide.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.