Robust UK manufacturing data bolstered optimism about Britain’s economy, while Vodafone has confirmed its record-breaking M&A deal, pushing the British pound up to its highest in three months against the euro. Report on UK services could add to the pound’s bullish sentiment ahead of the Bank of England’s policy announcement and vital US payrolls data. A US market holiday failed to restrain the US dollar, with the greenback up to one-and-a-half-month highs against the euro as investors weigh the outlook for US and eurozone monetary policy. The European Central Bank may hold its dovish rates pledge while US employment data carries the potential to significantly bolster the US dollar and kick-start renewed volatility across currency markets. Traders will look over UK construction data and producer prices from the euro area before data on US manufacturing.
Sterling
Further evidence that Britain’s economy is recovering faster than expected has pushed sterling to more than three-month highs against the euro, although the pound’s gains against the US dollar remain limited ahead of key US non-farm payrolls data. Data revealed that manufacturing growth in the UK surged to its highest in two-and-a-half years with new orders surging to multi-year highs. The monthly PMI UK manufacturing survey beat estimates, rising to 57.2 in August versus forecasts of 55.0.
US dollar
The US dollar has risen to its highest since July 22nd against the euro as the US hold off on military action against Syria while investors expect US labour market data to not stand in the way of the Federal Reserve reducing monetary easing this month. However, should the US government eventually follow through on threats against Syria, the US dollar may slide if the move clouds US monetary policy expectations.
Euro
The euro fell to one-and-a-half-month lows against the US dollar and could face further losses amid expectations that low inflation in the euro area will encourage the European Central Bank to remain dovish on monetary policy. Flash inflation figures showed price rises dropping to 1.3 per cent (y/y) in August against the previous 1.6 per cent rate. Analysts expect data to confirm that producer price pressure in Europe close to negative territory. The ECB will announce its latest rate decision and may stick to its previous pledge of low or lower rates for an extended period.