The British pound fell to a four month low despite stronger construction sector PMI, which unexpectedly increased in the month of December from 54.3 to 56.0.
This additional weakness may be due to the fact that even though there was growth in the commercial and civil engineering sub-sectors, construction firms reported the first reduction in residential construction activity since August 2006. For pound traders, the health of the consumer and the economy is contingent upon the health of the housing market. According to a BoE survey released today, credit conditions for households could tighten further as problems in the money markets persist. The same problem is expected to plague the corporate sector and collectively these factors are the dynamics that will restrain growth in the UK economy and a recovery in the British pound. Even though the market’s focus will be on Friday’s US non-farm payrolls report, the UK has a lot of data due for release during the European trading session, which means that we could see further volatility in the pair in the early hours of trading. We are expecting service sector PMI, mortgage approvals and consumer credit.