The Pound Sterling to US Dollar (GBP/USD) exchange rate remained in a narrow range on Tuesday while the Pound Sterling to Canadian Dollar (GBP/CAD) and Pound Sterling to New Zealand Dollar (GBP/NZD) recorded gains.
The New Zealand Dollar softened after the Reserve Bank of Australia (RBA) announced an interest rate cut of 0.25% causing the ‘Aussie’ to fall, and consequently the ‘Kiwi’.
Earlier… The Pound Sterling exchange rate fell against the US Dollar (GBP/USD), Canadian Dollar (GBP/CAD) and New Zealand Dollar (GBP/NZD) during Monday’s trading despite a rise in Markit’s UK Manufacturing Purchasing Managers Index (PMI).
The UK manufacturing sector gauge rose from 52.5 to 53.0 in January—a more favourable figure than the forecast 52.7. The index has remained above the 50.0 benchmark which separates expansion from contraction since April 2013.
Senior Markit economist Rob Dobson commented: ‘UK factories reported a welcome upturn in growth of output and order books at the start of the year, but producers clearly remain stuck in a low gear.’
‘The rate of expansion remains muted, however, with output rising at a quarterly pace of around 0.2% in January, barely improving on the 0.1% registered in the final quarter of last year. At this rate, the sector will provide little meaningful boost to the economy in the first quarter.’
As factories cut prices, the level of inflation is likely to tumble further, thereby delaying alterations to borrowing costs.
Bank of England (BoE) Rate Hike Forecasts Weigh on Pound Sterling (GBP) Exchange Rate
The Pound has been softer against other majors as expectations for a Bank of England (BoE) interest rate hike have become increasingly muted.
This week will see the BoE announce its latest interest rate decision—an event that’s expected to see the benchmark interest rate remain at 0.50%.
Economist Sam Tombs commented on the market’s recent assumption that rate hikes won’t occur until 2016.
Tombs stated: ‘Markets have just gone a bit too far in expecting rates to be on hold for another 18 months. There’s perhaps potential for a bit of a snap back if the inflation forecast does show the target being reached a bit earlier.’
Canadian Dollar (CAD) Exchange Rate Falls as Oil Prices Tumble
Meanwhile, the Canadian Dollar has been softer in recent months as the price of oil tumbles. Sunday saw the release of China’s Manufacturing Purchasing Managers Index, which took an unexpected dive in January. The Canadian Dollar to US Dollar (CAD/USD) exchange rate slipped below 79 US cents to 78.67 on Friday—a six-year low.
The index fell from 50.1 to 49.8—a far cry from the 50.2 economists had forecast. As China gets caught in a slowdown, demand for oil shrinks and adds to the global excess.
Economist Julian Evans-Pritchard commented: ‘Today’s disappointing PMI readings mean that a sustained recovery in industry now appears less likely.’
However, Monday saw the price of oil recover to above $55 a barrel after US production was forecast to fall. Falling US rig counts have caused economists to suspect that lower production could be occurring in the near future.
Analysts at Commerzbank commented: ‘Most market observers have been surprised by the scale of the decrease, and expectations of US oil output this year will no doubt be lowered accordingly’
US ISM Manufacturing Could Allow US Dollar (USD) Exchange Rate Rally
However, strikes have hit US oil refineries, with a mass walkout commencing on Sunday.
Industry expert Tom Conway commented: ‘The problem is that oil companies are too greedy to make a positive change in the workplace and they continue to value production and profit over the health and safety, workers and the community.’
However, the US is expected to have an interesting day for domestic data on Monday with the release of several important pieces.
US Personal Consumption Expenditure, Personal Income, Personal Spending, Manufacturing PMI, Construction Spending and ISM Prices paid are all of moderate importance and could influence the ‘Greenback.’ However, the most significant piece of information for the US economy will be the release of ISM Manufacturing.
The index is expected to decline slightly in January from 55.1 to 55.0. However, if the figure prints out of line with economists’ forecasts, the US Dollar could be affected.
New Zealand Dollar (NZD) Exchange Rate Offered Little Support from Chinese Manufacturing
Meanwhile, the New Zealand Dollar exchange rate was offered little support from the release of weaker Chinese PMI as China is New Zealand’s largest trading partner.
However, Monday will see Reserve Bank of New Zealand (RBNZ) Deputy Governor Grant Spencer speak, which could alter the ‘Kiwi’ to Sterling exchange rate.
Tuesday is forecast to be a big day for the New Zealand Dollar with the publication of highly influential Employment Change and Unemployment Rate figures. Unemployment is predicted to shrink in the fourth quarter of 2014 from 5.4% to 5.3% and could offer the ‘Kiwi’ significant support if correct.
Pound Sterling Exchange Rate (GBP/USD, GBP/CAD, GBP/NZD) Forecast
The Pound Sterling exchange rate is likely to fluctuate modestly this week as a result of domestic data, with only the UK’s Services PMI and Bank of England (BoE) interest rate decision being of high importance.
Other ecostats worth noting will come in the form of Markit’s Construction PMI on Tuesday and Composite PMI on Wednesday. Trade Balance data is scheduled for publication on Friday.
The Canadian Dollar could also have a big day on Friday when Canadian Net Change in Employment and Unemployment Rate numbers emerge.
Wednesday will see the US ISM Non-Manufacturing Composite figure surface, which is expected to hold steady at 56.5.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is trending in the region of 1.5036. The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate is reaching 1.9075. The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate resides at 2.0695.
