Pound lost more than 100 points in early London trade today after the construction PMI data showed a marked decline printing at 38.9 versus 43.1 forecast.
Talking Points
• Japanese Yen: Above 106.00 on firmer US rate expectations
• Australian Dollar: Retail Sales rise to fastest pace in 6 months
• Euro: EZ PPI much hotter than expected
• British Pound: PMI Construction awful at
• US Dollar: ADP on tap
Pound Crushed By Weak Construction PMI; Euro Remains Bid
Pound lost more than 100 points in early London trade today after the construction PMI data showed a marked decline printing at 38.9 versus 43.1 forecast. The reading was the lowest value in years suggesting that the UK housing sector is now mired in a deep recession that will likely have negative impact on overall UK economic growth going forward.
Coming on the heels of surprisingly bad PMI Manufacturing readings last night, the latest data out of UK indicates that the British economy may be in worse shape than consensus expectations. Sterling recovered some its vigor over the past several weeks on the assumption that BoE will maintain rates at 5% for the rest of 2008 in order to control rising price pressures caused by skyrocketing energy prices. However, given the fact that both manufacturing and construction sectors are now well below the 50 boom/bust line, UK growth could contract sharply within the next few months forcing the BoE to adopt a much more dovish posture before the year end. Thus, concerns about interest rate cuts which have dogged sterling over the past several months could come back to weigh on the unit once again.
In the EZ meanwhile PPI jumped to 1.2% from 0.9% projected reaching a level of 7.1% on a year over year basis. The news kept the EURUSD bid above the 1.5800 figure as traders now almost universally expect the ECB to hike rates by 25bp tomorrow. As a result of divergent rate expectations EURGBP surged to 7970 and may make another run at the 8000 level as the monetary policies of the two European central banks continue to move in the opposite directions.
In North America today, market participants will get another read on the health of the labor market with the release of the ADP report. The ADP numbers have been wildly inaccurate in predicting NFPs and therefore traders typically pay them little attention. However, if the ADP data confirms the deterioration in labor conditions signaled by yesterday ISM Manufacturing survey, the greenback could come under more selling pressure in New York trade. For now 1.5850 appears to be solid resistance as markets prepare themselves for the fireworks tomorrow.
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