The pound continued to gain ground across the board yesterday despite some disappointing construction PMI data for December and the introduction of the 20% VAT rate and other tax rises. The PMI data showed a contraction to 49.1, but given the unusually cold and snowy weather this appears to have been largely shrugged off, as have some mixed sales reports from retailers over the festive period.
Today’s Services PMI data which makes up the lion’s share of UK GDP could well be key to further gains, with expectations for the December figure to remain unchanged at 53, though it could well miss expectations given how manufacturing outperformed expectations this week and construction underperformed.
The release of much better than expected US ADP employment data for December gave the US dollar a significant boost yesterday after posting a record rise of 297k, nearly three times market expectations of 100k, though some of this may be seasonal in nature, but it does raise expectations for Friday’s key non-farm payrolls figure with some analysts rushing to revise their expectations higher.
US bond yields pushed higher sending the US dollar up across the board though it did slip back against commodity prices later on.
Despite improving German economic data, the euro has continued to find itself weighed down by risk aversion after yesterday’s Portuguese 6 month bond auction showed yields had increased from a previous 2.04% to 3.68%. The net effect of this was to start pushing bond spreads out again across the periphery with Greek 10 year yields hitting new record highs yesterday, above 12.50%.
The euro was also hit after the Swiss National Bank announced it would no longer accept Irish debt as collateral.
The Australian dollar was hit by initial reaction to the news of the Queensland floods which will hit Australian coal and other commodity exports.
Commentary by Tony Redondo
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
