The next round of Markit PMIs for the UK will begin at the end of this week, although investors will have to wait until next week for the most important survey; the services index.
GBP AUD is today rebounding from the more-than three-week low of 1.1773, building on weekend gains to rise 0.3% to 1.7279. Election jitters appear to have waned slightly.
There is no UK data set for release today to provide support, but the approach of key US data is keeping the Australian Dollar on lacklustre form.
Australia’s data releases have been largely positive, with the latest ANZ Roy Morgan weekly consumer confidence index climbing from 110.5 to 112.2.
Meanwhile, building approvals have grown 4.4% month-on-month in April, beating forecasts of 3%, while March’s decline was revised lower to -10.3%.
Year-on-year this still represented a decline of -17.2%, however, although this is still a slowdown from March’s -19.9% drop and better than the forecast -18.1%.
This week could see the medium-term trajectories for both the Pound and the Australian Dollar become much clearer.
Today’s US personal consumption expenditure figures are the Federal Reserve’s preferred measure of inflation.
Some policymakers have expressed concern that price growth isn’t strong enough, while the latest Federal Open Market Committee (FOMC) meeting minutes stated that data needed to print in-line with forecasts before the June gathering if interest rates were to be hiked.
Therefore, if the forecasts for today’s data to weaken are accurate, markets might get second thoughts about their confidence in monetary tightening.
This could help support the Australian Dollar higher.
Meanwhile, Thursday’s UK Markit manufacturing PMI will be the first of three releases over the coming days to give an insight into how the UK economy performed in May.
Although manufacturing and construction are small contributors to the UK economy, how they print usually sets expectations for the vital services index, which is due on Monday.
If the indices this week both improve, the Pound will get a boost on hopes that the services industry has also seen growth; while Sterling will weaken if the opposite happens.
After the sharper-than-expected slowdown in GDP seen during the first quarter, markets are hoping the UK economy can avoid a second quarter of weakening output.
Last month’s manufacturing PMI shot up to a three-year high of 57.3, while the construction and services indices climbed to four-month highs.
Despite this strength, the Q1 GDP data indicates that the manufacturing sector is not benefitting from the weakened Pound exchange rates in the way economists had expected.
Investors may therefore take even positive scores from the upcoming PMIs with a pinch of salt, especially considering they are ‘soft’ data.
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