Sterling remains on a negative footing as we open up in Europe. Monday’s poor manufacturing data alongside yesterday’s release of an opinion poll that showed a distinct narrowing of the gap between the Yes and No votes in the referendum for Scottish independence have broken GBPUSD to the lowest level since Feb 12th. Even GBPEUR was taken back towards the 1.25 level; this was not just the evidence of a strong USD dollar but an all-round nightmare for sterling.

Yesterday’s construction numbers showed a construction market that is booming at the moment in the UK. In fact, it is close to bubble territory in our minds. Output and orders continue to fly higher while the employment of skilled sub-contractor labour has contracted so much that availability has fallen to a record low and rates to a record high. It is a good time to be working in construction if you have the skill-set. Gains appear to have been made across all three divisions – housing, commercial and civil engineering – of the construction sector, driving confidence higher still.

According to the survey, eight times as many firms believe that the sector will continue expanding over the year ahead as opposed to seeing declines. Price data was also strong with input inflation expanding at the strongest levels since July 2011; good news for margins in the short term but a continuation is contingent on reliable progression onward.

This had no positive effect on sterling however and should we see a disappointment in this morning’s services sector PMI then it will another day of red for sterling crosses. The figure is expected at 58.5 and is due at 09.30. Sterling volatility has also peaked in the 24hrs to the highest levels since April.

Similar figures from the Eurozone are due throughout the morning session. Monday’s manufacturing numbers broadly disappointed with French and Italian industry contracting through August. Flash estimates of today’s releases had the trend of slowing growth continuing although we are in doubt about how damaging these figures will be for EUR.

The single currency was conspicuous by its absence in not losing ground against the USD yesterday. Yen, sterling, Aussie, Kiwi and Canadian dollars have all slipped by 50-100bps versus the resurgent US dollar through the past 24hrs whereas the EUR has managed to hold its ground. Some suggest that this is because the EUR is already very weak and has weakened quickly through the end of Q2 and beginning of Q3. I think that there is an element of the market waiting on a probable Draghi disappointment in tomorrow’s European Central Bank meeting. No new policy will be forthcoming and we forecast that there will be little fresh meat for the ECB President to toss to the EUR bears.

Tomorrow morning, we will be running our next central banking webinar with a more in-depth look at the issues that are governing currencies in today’s markets and, of course, our look at what could materialise later in the year. The past few months have seen the European Central Bank move deposit rates into negative territory with the euro starting to lose ground. The Bank of England veered from talking about higher rates to pushing hikes into 2015 with the pound enduring seven straight weeks of losses versus USD and the Federal Reserve is finally starting to talk about higher rates given moves in its labour markets, but the market is yet to truly believe it.

All this and more will be discussed on Thursday morning – you can register hereshould you wish to attend.

Italy’s release is due at 08.45, France’s at 08.50, Germany comes out at 08.55, and the Eurozone wide measure at 09.00 – all times BST.

The delay for yesterday’s US manufacturing release was certainly worth the wait as the ISM rose to 59.0 from 57.1, the highest since March 2011. Orders from the sector have not been as high as they were in August for ten full years, and a solid continuation in jobs and hiring intentions by manufacturing firms will keep expectations around Friday’s payrolls announcement high. Dollar on a trade weighted basis remains close to 14 month highs this morning.

Today’s Bank of Canada meeting this afternoon will not see any change in policy.

Have a great day.

Indicative Rates Sell Buy
GBPEUR 1.2537 1.2558
GBPUSD 1.6468 1.6489
EURUSD 1.3125 1.3146
GBPJPY 172.95 173.16
GBPAUD 1.7702 1.7724
GBPNZD 1.9816 1.9837
GBPCAD 1.7993 1.8015
NZDUSD 0.8303 0.8319
GBPZAR 17.658 17.682
USDZAR 10.712 10.737
GBPPLN 5.2714 5.2937
EURJPY 137.83 138.03