Pound sheds daily gains after German unemployment and US manufacturing data

The pound started yesterday with some strong gains, but the negative impact of the day’s poor UK data could not be escaped for long.

The pound is largely on negative form this morning as markets await the latest services data. GBP/EUR is stuck around opening levels at €1.1239, as is GBP/USD at US$1.3519. GBP/AUD has slipped -0.3% to AU$1.7219, GBP/NZD has fallen -0.4% to NZ$1.8979, and GBP/CAD is inching down from opening levels at C$1.6929.

Read on to find out what vital data is due from the UK and US today that promises to keep the currency markets volatile…

What’s been happening?

Yesterday saw the GBP/EUR and GBP/USD exchange rates on the advance, despite the fact that the morning’s Markit UK construction PMI had posted a worse-than-expected drop from 53.1 to 52.2.

Although homebuilding remains strong, Brexit uncertainty continued to restrain demand for civil and commercial building work.

Later, however, Sterling was pressured lower and ended the session having shed the day’s gains.

The euro received support from the German December unemployment figures, which showed a better-than-expected -29,000 drop in the number of people out of work, compared to the forecast -13,000 drop.

November’s unemployment claims rate was also revised lower to 5.5%.

Strong US data further hampered the pound, with USD climbing after the ISM manufacturing index for December unexpectedly rose from 58.2 to 59.7.

What's coming up?

Expect to see significant volatility for pound Sterling exchange rates later when the UK services PMI for December is released.

The index measures activity in the sector responsible for over three quarters of the UK’s economic output, so the pound could tumble if the PMI follows in the footsteps of Tuesday’s manufacturing index and yesterday’s construction measure to record a worse-than-expected result.

On the other hand, above forecast strength here could help shore up weakness seen in the other two sectors, keeping the composite reading steady.

Eurozone services and composite PMIs will also be released today, but these are finalised versions of preliminary estimates, so may not have much impact upon the euro.

Meanwhile, this afternoon’s ADP employment change figure for December could have a strong impact upon the US dollar.

Tomorrow sees the release of the highly influential US non-farm payrolls report, and markets tend to imagine that the trend seen in the ADP figure is indicative of how the larger, more important index will perform.

While there is historically little correlation between the two, a strong figure from today’s ADP data would likely push the US dollar higher on rising market hopes for a positive NFP reading.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.