Pound weak as construction PMI barely misses contraction levels

Another disappointing PMI for January sent Sterling lower on Friday, with markets beginning to fear that today’s key services index would complete a trio of below-forecast results.

Market anticipation of today's key UK data releases is keeping the pound in negative territory so far this morning. GBP/EUR is just below opening levels at €1.1326, while GBP/USD is down -0.2% to US$1.4096. GBP/AUD has slipped to AU$1.7784, GBP/NZD is flat at NZ$1.9299, and GBP/CAD is down -0.2% to CA$1.7504.

Read on to find out why it’s not just today’s UK data that threatens to keep the pound on volatile form…

What’s been happening?

The pound was on lacklustre form on Friday, recording losses versus both the euro and US dollar.

The January UK construction PMI disappointed forecasts with a -2 point slump to just 50.2, barely above contraction territory - survey company Markit suggested that the sector could contract during February.

There was little in the way of fresh domestic support for the euro at the end of the week, but cooling global market risk appetite and the fact that recent Eurozone data has shown the currency bloc economy to be performing at a ten-year best pushed EUR higher.

The afternoon’s US data releases were the focus of the day; the January non-farm payrolls figures clocked in at the forecasts, with the previous month’s employment growth also revised higher.

Adding to the good news was the fact that wage growth had also bettered estimates, providing yet another solid reason why the Federal Reserve should consider raising interest rates again.

As a result GBP/USD slumped.

What's coming up?

The UK services and composite PMIs for January are set for release this morning. So far both the manufacturing and construction index has significantly disappointed forecasts, so the threat remains that the key services index could drop much further than the -0.1 point forecast.

The pound could therefore be set to tumble today, if the PMIs prove that the UK economy started 2018 on the wrong foot.

This morning’s slew of finalised services and composite indices covering the major Eurozone economies could further serve to underline the strength of the currency bloc economy and therefore boost the euro.

Whether gains can continue will depend upon the results of the February Sentix investor confidence survey and the December Eurozone retail sales figures.

Odds of an interest rate hike from the Federal Reserve next month are already extremely high, but market confidence could rise further if this afternoon’s ISM non-manufacturing composite index rises as forecast.

GBP exchange rates could therefore be in for a choppy day.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.