Exchange Rates Today: GBP Fluctuates, EUR Gains, USD Steady
Pound Sterling (GBP)
Demand for the Pound remained relatively high on Monday despite less-than-satisfactory manufacturing activity which had slowed to its lowest level in 14 months during August. The Manufacturing PMI dropped from 54.8 to 52.5, which has been attributed to a reduction in foreign demand due to the geopolitical tensions between Russia and Ukraine.
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The unsatisfactory manufacturing data suggests that the government’s quest to rebalance the economy from domestic consumer spending to international export growth is failing. This is evidenced by the consumer credit data which increased from 0.7 billion to 1.1 billion in July.
Tuesday’s Construction PMI showed the fastest growth in seven months. Having been forecast to decline from the previous figure of 62.4, the actual data was a surprising leap to 64.0. The positive result has had little effect on Sterling movement thus far which is partly due to the fact that construction makes up a very small part of the British economy. It may also be attributed to trader anticipation of a decline in services on Wednesday, especially considering that services makes up the majority of the UK economy.
In reaction to a soft set of Eurozone and German data publications on Monday the Pound to Euro exchange rate struck a fresh monthly high. German manufacturing fell from 52.0 to 51.4 and the Eurozone Manufacturing PMI dropped from 50.8 to a 13-month low 50.7. Despite the fact the manufacturing output remained above the level which divides growth from contraction, it was so marginal that the data still had a negative impact on Euro movement.
The probability that the European Central Bank will opt to start buying sovereign bonds has increased after negative job growth and tepid export figures in the most influential economies within the 18-nation bloc. All of which suggests that third quarter Gross Domestic Product will produce below-par growth.
Tuesday has seen the Euro strengthen slightly versus its major peers as traders choose to avoid risk-aversion in the hope that ECB stimulus will benefit the European economy.
US Dollar (USD)
Monday morning saw Pound Sterling strike a 10-day high versus the US Dollar, but the gains were short-lived following the less-than-impressive UK Manufacturing PMI.
Tuesday afternoon will see the publication of the US ISM Manufacturing Report which has been forecast to soften from 57.1 to 56.8 in August. If the report stays faithful to the forecast figure it is likely that the Pound will gain against the US Dollar, especially after the better-than-expected UK Construction output.
Canadian Dollar (CAD)
The Canadian Dollar struggled versus the Pound on Monday despite the UK’s cooling manufacturing output. Tuesday’s Canadian Manufacturing PMI will be of interest to those backing the Canadian Dollar, but if it doesn’t equal or exceed the previous figure of 54.3 the ‘Loonie’ (CAD) is likely to soften against the Pound as traders await the key Canadian bank rate decision on Wednesday. It is expected that the Bank of Canada will continue with the 1% benchmark interest rate, and so is unlikely to have any major impact on ‘Loonie’ movement.
Australian Dollar (AUD)
Sterling made gains on the Australian Dollar on Monday in anticipation of the decision from the Reserve Bank of Australia regarding the interest rate.
The Reserve Bank of Australia decided to continue with the current interest rate of 2.50%, but an accompanying statement from the RBA Governor Glenn Stevens saw the ‘Aussie’ plummet across the board. Stevens suggested that the Australian Dollar has been overvalued to the extent where it is hampering economic growth.
New Zealand Dollar (NZD)
The ‘Kiwi’ (NZD) registered a slight gain against the Pound on Monday as the result of a combination of poor British manufacturing output, and New Zealand terms of trade which held steady at a 40-year high. Chinese manufacturing held the ‘Kiwi’ back a little but concerns over Britain’s ability to rebalance the economy towards export-led growth saw the New Zealand Dollar end the day trending higher.
Tuesday has seen the Pound make slight gains against the ‘Kiwi’ after construction output showed the fastest growth in seven months.
South African Rand (ZAR)
The Pound Sterling to South African Rand trended upwards on Monday despite the unimpressive UK manufacturing data. This is likely to be as a result of the recent South African bank downgrades.
Tuesday has seen Sterling fluctuate versus the Rand in spite of better-than-forecast UK Construction output. The softening of Sterling may be attributed to trader anticipation of a dovish Bank of England interest rate decision.