Sterling is again testing last week’s 21-month high against the euro after above-forecast UK construction PMI data lightened concerns about Britain’s economic outlook. However, the pound failed to keep pace with a resurgent US dollar. The euro is likely to face more pressure ahead of the European Central Bank’s monetary policy meeting while a Spanish debt sale may create some panic in European bond markets. However, the UK data could help spread some of that strain with analysts expecting to see slower growth in Britain’s dominant services sector. The US dollar may continue to provide shelter for investors but is expected to dominate trading.
Sterling
CIPS construction PMI for April eased from March’s 21-month high of 56.7 to 55.8, beating median forecasts of a bigger decline to an index level of 54.0. The data stood in contrast to euro zone updates which have put the euro under pressure ahead the European Central Bank monetary policy decision. As a result, sterling finds itself trading above key psychological levels near 22-month highs against its European counterpart. However, with prices now not far off 2008 peaks, UK service sector data is likely to test the pound’s resolve with analysts predicting slower growth last month.
US dollar
The US dollar produced another remarkable performance with the need for safe haven investments superseding speculation about the Federal Reserve’s quantitative easing plans. Payroll giant ADP reported that US private employment increased by just 119k in April, missing forecasts of 177k which does not bode well ahead of all-important non-farm payrolls data. Nonetheless, worrying euro zone economic reports have put the spotlight back on Europe’s dire growth and fiscal outlook with the subsequent risk-averse sentiment working in the dollar’s favour.
Euro
The euro tumbled, touching 1½-week lows against the US dollar whilst revisiting 21-month low versus the British pound on expectations the European Central Bank will hint at further stimulus to counter the region’s worsening growth outlook.. Furthermore, unemployment in March rose to 10.9 per cent representing a 15-year high, whilst separate data from the German economy was equally as worrying.
Japanese yen
The reduced liquidity in Asian markets is likely to spur volatility with activity already expected to be choppy heading into US unemployment data. The yen remains near multi-week highs against its key rivals after Japanese investors decided to take a more cautious approach when closing their positions ahead of the long weekend, thus favouring the safer yen.