Good manufacturing data boosts sterling | Smart Daily Currency Note

Sterling

Sterling moved upwards to a three-week high against the dollar as better than expected UK manufacturing figures boosted the UK currency yesterday. The British Purchase Manager's Index data emerged more positively than expected (at 51.3 instead of 50.2); the highest gauge of manufacturing activity in fourteen months. With the manufacturing expanding above estimates, chances are increasing that the Bank of England will hold off from instigating further action as it meets to discuss policy on Thursday when incumbent Governor Mervyn King chairs his final policy meeting. The UK currency has still performed poorly this year, and markets will be waiting to discover what impact Mark Carney can have when he takes over the helm at the bank. This morning sees the release of UK construction figures: be in touch with Smart to discuss whether sterling can maintain this upward momentum.

Euro

The euro relinquished recent advances against sterling yesterday as the European Central Bank President spoke about the challenges remaining for the region; reiterating that the economic situation remains unhealthy and that monetary policy alone cannot make up completely for structural reform. Manufacturing in Europe yesterday however was shown to be contracting at a slower pace than anticipated, and in contrast to US data the single currency strengthened against the US dollar late on but lost ground to a strong sterling. Interest rates in Europe are anticipated to be kept steady at record lows on Thursday, though the central bank will be trying to conjure less standard measures to stimulate growth as many governments become increasingly reliant on monetary support. Track euro price levels throughout today as Spanish Unemployment data emerges by calling your trader.

US dollar

The US dollar weakened throughout yesterday afternoon in most of its major pairings following downbeat manufacturing figures. The Institute for Supply Management unveiled its manufacturing index fell through April along with new orders and employment. - the first contraction since November. The weak figures have helped to dilute on-going speculation of whether the Federal Reserve will taper back its quantitative easing initiative later on this year, though positive sentiment surrounding the currency is unlikely to wane ahead of the next Federal Open Market Committee interest rate decision later this month. Indeed, the San Francisco Federal Bank President yesterday commented that the US asset purchase facility could be reduced as early as this summer, and as a growing number of central bank officials reduce their willingness to keep expending the balance sheet we may see the US currency strengthen into the summer months. We saw the US dollar’s ability to weather negative data last week, so with important Trade Balance figures emerging this afternoon call in for the latest information and help with your trading requirements.

Worldwide

Elsewhere, following a turbulent week of demonstrations in the country the Turkish lira prices crumbled as the public hit out at the current government. The currency fell for a fifth day to seventeen-month lows as riots erupted in Istanbul and Ankara. The Prime Minister, having left the country, is showing no signs of backing down however and the region faces a difficult summer with lira prices already suffering at the potential for tighter US monetary policy. Elsewhere, the Australian dollar rebounded following signs that the economic slowdown in China is bottoming out, whereby economists expect the Reserve Bank of Australia to keep interest rates at record lows of 2.75%. The South African rand similarly enjoyed a resurgence after being oversold heavily the past few days; appreciating against all of its major counterparts with a report showing manufacturing to have grown unexpectedly last month; whether Africa's largest economy can recoup more of recently sustained losses remains to be seen. Overnight we saw the  Reserve Bank of Australia’s interest rate decision and later on today the main release will be the Canadian trade balance data. Stay on top of the latest developments worldwide with Smart throughout the week.