Some might be wondering how the pound has held up so well in the face of an exceptionally gloomy UK economic back drop. Two reasons – more concerning data elsewhere and Brexit hope.
Yesterday’s UK services PMI for September was shocking by any means. The reading printed below the 50 expansion/contraction mark, making it a hat-trick of highly concerning UK September PMI releases this week. Noticeably, the pound has almost ignored all these prints and is focusing its attention elsewhere.
Firstly, our friends in the US appear to be in a spot of bother. This week’s US manufacturing and non-manufacturing ISM prints were both AWFUL! No ifs no buts, US numbers have been very worrying of late. This has ramped up hype that recession is nigh. As a result, weakness in the pound has been netted-off by a higher level of weakness in the buck.
Secondly, Brexit hope still remains very much present. From Boris Johnson’s Conference speech to his appearance in Parliament and even to Jean Claude Juncker’s comments the other week, traders & dealers are building hope a last minute deal can be struck. The consequence being a smidgen of support for sterling.
Today is all about the US non-farm payrolls release for September. This could make or break the greenback. Expectations are low meaning we could see a sharp snapback for the US dollar should the release prove not as worrying as many are now forecasting.
Written by Viv Savani. 8:26am, October 4th 2019
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