The Euro to Pound Exchange Rate Mystery: "Something deeper and perhaps more profound"
Monday morning sees the release of the first economic data in what will be a week filled with data points for the British Pound Sterling (Currency:GBP) to latch onto. The outlook for GBP is mixed as the August rally has given way to a corrective phase. Any misses on this week's PMI data could trigger a deeper reversal.
Highlights:
@09:31: Manufacturing sector powers ahead, GBP boosted
@11:15: Vodafone / Verizon deal and implications for GBP
@13:42: The EUR/GBP mystery: "Something deeper and perhaps more profound"
Updated Rates (As of most recent post).
- The Pound to Euro exchange rate is 0.54 pct higher on a daily basis at 1.1791.
- The Pound to US Dollar exchange rate is 0.52 pct higher at 1.5582.
- The Pound to Australian Dollar exchange rate is 0.35 pct lower at 1.7360.
- The Pound to New Zealand Dollar exchange rate is 0.5 pct lower at 1.9966.
- The Pound to South African Rand rate is 0.26 pct lower at 15.9044.
NB: The above are spot market quotes, your bank will subtract their own spread when passing their retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering you more currency. Please learn more here, or use our custom live vs retail currency converter.
16:37: Construction PMI's the next focus for British Pound
Tomorrow at 09:30 Markit release August Construction PMI data.
Analysts are expecting a reading of 56.9, higher than last month's 57.
As Kathy Lien at BK Asset Management points out, this data is of significant concern for the British Pound:
"We believe that PMI and industrial production numbers could have a much more significant impact on sterling than the rate decision.
"If the data shows that the recovery is gaining momentum, we could see renewed demand for the British pound as a large part of the currency's resilience has to do with the upside surprises in data. We are also interested in seeing whether a detailed statement is released after the rate decision.
"BoE Governor Carney chose to provide one in his first monetary policy meeting but comments in his second statement was much shorter. As a new central bank governor, the market is still trying to understand his rhythm."
15:50: Get ready for September currency action
Kathy Lien says September promises to be pivotal for currency markets:
"We want to take this opportunity to explain why September is such a pivotal month for the foreign exchange market.
"Not only are investors finally back from their summer holidays and trading volumes can return to normal but we have some major event risks that go beyond this week's 5 central bank rate decisions and non-farm payrolls report:
1. September 18-19 FOMC Monetary Policy Meeting
2. September 22nd German Election
3. September 7th Australian Election
4. Japanese Consumption Tax
5. US Debt Ceiling
"September is generally a busy and active month in the financial markets but with so much going on, we expect even greater activity that could lead to breakout moves in currencies."
14:31: Sterling forecasts from RBS
RBS have today released their latest British Pound Sterling (Currency:GBP) forecasts, and GBP-EUR and GBP-USD are tipped to head in opposite directions. Find out more.
13:42: "Something deeper and perhaps more profound"
Interesting insights into the Euro Pound exchange rate from Stephen Gallo at BMO Capital Markets:
"The move lower in EUR/GBP – also continuing a trend we witnessed last week – is an important point of interest. We intend to finalise and release a few thoughts on the EUR tomorrow when North America returns.
"For the time being, we suspect that the trend lower in the pair reflects something deeper and perhaps more profound than simple data divergence."
12:06: Beware volatility in Sterling / Aus Dollar rate
Gareth Berry at UBS says: "Once a quarter, the Australian dollar faces a week of concentrated event risk. It must run the gauntlet between monthly and quarterly domestic economic reports, an RBA policy decision, China PMIs, and a US payrolls report." Read today's Australian Dollar report.
11:40: More on the implications for GBP of the Vodafone deal
More regarding the Vodafone deal.
The size of the potential cash flow is significant; overall daily flows in sterling against the dollar average out at around $91 billion a day, according to data from the Bank of England.
Even smaller transactions often generate knee-jerk currency-market reactions.
"Recent studies we have done on the impact of M&A activity suggest that there is an impact on currencies markets when a deal is announced, regardless of the value of the deal," said Ian Stannard, a currencies analyst at Morgan Stanley.
11:15: Vodafone deal supporting Pound Sterling once again
Last week we reported of strong flows support for GBP courtesy of an impending deal that will see Vodafone divest Verizon wireless.
Chiara Albanese at The Wall Street Journal confirms such flows support is evident once again today:
"Sterling has pushed higher Monday amid signs that Vodafone Group PLC (VOD) is close to inking an agreement to sell its stake in Verizon Wireless, a deal that could involve bringing some $60 billion of cash back into the U.K., but analysts say the currency impact may soon fade away.
"The Vodafone board approved the $130 billion deal in principle over the weekend, according to a person familiar with the situation, though the agreement hasn't been formerly finalised. Roughly half of the price-tag total is expected to be paid in cash."
10:04: Debate over Bank of England policy will heat up after today's strong PMI beat
Jeremy Cook at WorldFirst on the repercussions of today's strong PMI release:
"We have started this week with a positive tone as the purchasing managers index for the manufacturing sector beat expectations surging to their highest level in three years.
"This will no doubt spark further debate around Bank of England policy and was followed by a quarterly survey by BDO that suggests the UK’s recovery may be more broad-based than consumer-led growth based on households running down savings, with investment growth also picking up."
09.31: Sterling surges as Manufacturing PMI beats expectations
A massive beat by Markit UK Manufacturing PMI data: Actual = 57.2, expectations were for 55, last month = 54.8.
Sterling has shot higher.
08:16: Manufacturing PMI and the threat of disappointment
The bar has been raised concerning UK data releases. Last month's manufacturing PMI helped trigger August's strong rally in the Pound Sterling.
The risk now is skewed to the downside, as Ross Walker at RBS tells us:
"The coming week's data flow may come to the aid of the doves. The magnitude of the recent gains in the PMI surveys means that the risks of a modest retracement are growing – we forecast small declines in the services and manufacturing PMIs alongside a fall in ONS industrial production in July after an outsized gain in June."
Markets are expecting a reading of 55, up on last month's 54.6.
08:13: GBP/USD bears itching to take control
Camilla Sutton at Scotiabank says the technical outlook facing the British Pound Sterling (Currency:GBP) has turned bearish:
"GBP-USD short‐term technicals: bearish as most signals suggest downside and the spot pattern reflects the bears taking over control. We expect a near‐term test down to the 100‐day MA at 1.5361."
08:10: GBP downside ahead say UBS
Gareth Berry at UBS gives the following outlook note on GBP/USD:
"As long as resistance at 1.5608 holds, the risk is for resumption of weakness to test the strong support at 1.5373."
However, EUR/GBP could remain under pressure:
"The cross is under selling pressure and all evidence suggests more weakness to test the important support at 0.8398. Resistance is at 0.8553."