The Pound would reach an intraweek high of 1.4111 on the back of a better than expected March manufacturing PMI reading that rose to a five month high of 39.1 from 34.7. Although activity remained in contraction for an 11th month, it was the first clear sign that the decline has ended and future growth may be expected as new orders reached the highest level since last August.
[B][U]Talking Points[/U]
• Japanese Yen: USD/JPY Gains Capped by 200-Day SMA at 99.25
• Pound: Manufacturing Improves To Five Month High
• Euro: Unemployment at 3 Year High
• US Dollar: ISM Manufacturing and ADP Employment On Tap
[U]Sterling Rises As Manufacturing Activity Jumps, PM Gordon Brown Calls For Urgent Action At G-20[/U][/B]
The Pound would reach an intraweek high of 1.4111 on the back of a better than expected March manufacturing PMI reading that rose to a five month high of 39.1 from 34.7. Although activity remained in contraction for an 11th month, it was the first clear sign that the decline has ended and future growth may be expected as new orders reached the highest level since last August. However, the amount of money that Britons pulled from their homes fell to the lowest since records began in 1970 at -£8.0 billion from -£5.7 billion. This will reflect in future demand for high ticket items such as automobiles and could lead to a reversal of last month’s gains manufacturing as it will weigh on future consumer consumption. .
U.K. Prime Minister Gordon Brown met with President Barack Obama ahead of the G-20 meeting today and called for “long-term change in banking board rooms” and expects that global leaders will agree on coordinated efforts to boost growth. . Additionally, the U.K. PM said that he was prepared to act to prevent deflation which could be a sign of further quantitative easing from the BoE. We could see the pound weaken on the prospect that the central bank will continue to print more money in an effort to fuel growth and loosen credit markets. However, if the G-20 meeting spurs hope of global growth then sterling could benefit from increasing risk appetite. Indeed, President Obama called for less protectionism and PM Gordon Brown has called for the creation of a $100 billion pool of trade credits to help boost the flow of trade, which should be viewed as a positive by traders.
The Euro has spent the majority of overnight trading session in a tight 60 pip range between 1.3170 – 1.3230 despite a slew of weak fundamental data. German retail sales in February unexpectedly declined by 0.2% following a 0.9% drop the month prior which was significantly below expectations for a 0.3% gain. A weakening labor market in the country has weighed on consumer spending and with Euro-zone unemployment rising to a three year high of 8.5% in February, we may see the same for the entire region. Meanwhile, the final EZ PMI reading for March was revised lower from 34 to 33.9 signaling that the economy may continue to contract. The ECB is expected to lower their benchmark rate by 50 bps in the face of the declining economy at tomorrow’s rate decision, but the question is will they offer further solutions. The central bank has remained under pressure from home and abroad to take more aggressive action and follow the Fed and BoE in exploring quantitative easing measures. The upcoming G-20 meeting could be the catalyst for the policy committee to attempt to get ahead of the curve in which they have been lagging since the crisis began.
The dollar was mixed overnight but we may see volatility pick up during the U.S. session as the economic calendar is filled with event risk. The ADP private employment report is expected to show another month of private sector job losses in excess 650,000. The ISM manufacturing reports which is strong indicator for future activity and has grown in importance is expected to show that activity slightly increase to 36.0 from 35.8. However, given that he New York and Chicago regional readings registered their lowest in record a disappointing print is very likely. Yet, a positive print combined with the expected improvement in pending home sales could inspire risk appetite and weigh on the dollar. Indeed, the number of home in the process of closing are expected to have remained flat which in conjunction with recent surprises in existing home and new home sales may be a sign that the housing market is beginning to bottom. Yet, a looming ECB rate decision, G-20 meeting and NFP report could keep markets quiet today.
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[I]To discuss this report contact John Rivera Currency Analyst:[/I] [EMAIL=“[email protected]”][email protected]
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