Green Shoots of Recovery?

The dollar reigns supreme as upbeat PMI surveys from around the world spark optimistic market sentiment

Previous Day's Market Highlights

The dollar finished Tuesday as the best performing major currency, adding 0.3% against a basket of peers, as the greenback was buoyed by upbeat data from the services industry. ISM non-manufacturing PMI figures for February rose to their highest level in 3 months to reach 59.7, with new orders growing at their fastest pace since 2005. With concerns over a global economic slowdown persisting, investors latched onto the positive data, hence the dollar demand. The services sector’s upward trend was in evidence across the world, with figures for the eurozone also beating expectations. The services industry in the eurozone also expanded at its fastest rate in 3 months, however the euro lost ground as investors remained tentative ahead of Thursday’s ECB meeting.
The pound had a mixed day despite upbeat data and relatively hawkish comments from Bank of England Governor Carney. The UK’s services industry also expanded at a faster pace than expected, however employment falling at its fastest pace since 2011 took some shine off the release. Also weighing on the pound were comments from opposition Labour Shadow Chancellor John McDonnell suggesting that opposition MPs remained unlikely to vote in favour of the Prime Minister’s Brexit deal. Meanwhile, BoE Governor Carney suggested that the markets’ pricing of the path of interest rate rises “may not be high enough”, a modestly hawkish signal which helped sterling to pare some of its earlier losses. At the close of London trading, sterling was unchanged on the day against the euro and trading down by 0.3% against the dollar.
Elsewhere, the Swiss franc and New Zealand dollars lost around 0.5%, mainly due to the dollar weakness. Overnight, the Australian dollar has lost around 0.7% after GDP figures for the final quarter of last year showed growth of just 0.2% on a quarter-on-quarter basis and 2.3% on a year-on-year basis - well short of both market expectations and the RBA’s official forecasts. The poor data has further increased expectations that the RBA will cut interest rates this year. 
In other markets, European equity markets recorded modest gains with the pan-European Stoxx 600 adding just shy of 0.25%. It was the opposite story in the US, where the benchmark S&P 500 lost 0.1%. Finally oil prices pared gains despite OPEC-led supply cuts, global benchmark Brent lost 0.45% over the day.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1630 1.1724 1.1312 3.51%
GBP/USD 1.3140 1.3350 1.2773 4.32%
EUR/USD 1.1300 1.1419 1.1233 1.63%
GBP/AUD 1.8689 1.8725 1.7990 3.93%
GBP/NZD 1.9392 1.9542 1.8660 4.51%
GBP/CAD 1.7558 1.7630 1.6973 3.73%

Today's Market Highlights

Today’s main data highlight comes from Canada, with the Bank of Canada (BoC) set to release their latest monetary policy decision this afternoon. Expectations are for interest rates to be kept on hold, however the BoC are likely to strike a less hawkish tone than their previous meeting in light of a softening in economic activity – exemplified by the fall in Q4 GDP to just 0.4% on an annualised quarter-on-quarter basis. Furthermore, core inflation measures remain below the BoC’s 2% target, hence any policy tightening is likely to be put off for now. Despite the less hawkish tone, it is likely that the BoC will emphasise their desire to continue normalising monetary policy, with the aim of bringing rates back to their neutral level. Any overtly hawkish signals may provide the loonie with some support, arresting the currency’s slide after falling almost 2% this month.
Elsewhere, attention will fall on the North American session with both the UK and European economic calendars devoid of any data releases. The most important data release comes from the US, with ADP employment change figures for February expected to show an increase of around 190,000 ahead of Friday’s all-important official labour market report. Also in the limelight will be trade balance figures, expected to show a further widening of the trade deficit in addition to the Fed’s beige book – anecdotal information on domestic economic conditions.
Finally, a few central bank speakers are scheduled, with most focus likely to fall with the Bank of England. Typically, dovish Deputy Governor Cunliffe speaks around midday while, at the other end of the spectrum, hawkish external member Saunders speaks later in the afternoon. Focus is likely to fall with post-Brexit monetary policy measures. Markets will also hear from the Fed’s Williams, who is likely to continue to emphasise the Fed’s patient stance.

Today's Economic Calendar

Time Currency Release Consensus Previous
13:15 USD ADP Employment Change 189k 213k
13:30 USD Trade Balance -57.0bln -49.3bln
15:00 CAD Bank of Canada Rate Decision 1.75% 1.75%
15:00 CAD Bank of Canada Rate Statement