Pound sterling to maintain holding pattern against euro and other key currencies ahead of Thursday's key event, construction PMI plunges lower (2)

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Published on Tuesday, 03 July 2012 13:58

Written by Will Peters

International Money Transfers at our sister site

The pound sterling (Currency:GBP) sold off ahead of, and bounced back in the wake of, very weak UK data.

Like the majority of G10 currencies sterling has essentially remained in a consolidation range. The pound euro exchange rate is unchanged at 1.2478. The pound dollar exchange rate is unchanged at 1.5691.

The pound to Australian dollar rate is 0.19 pct in the red at 1.5275. (Our FX Forecast Watch service on IMT has just been updated, use our Facebook entry path for entry and to receive updates).



"In the same light, we expect the GBP to remain in a holding pattern ahead of the BoE meeting on Thursday," says Shaun Osborne at TD Securities.

On the data front we note that the construction PMI fell from 54.4 to 48.2, well below the 52.9 expected by consensus.

"The details were soft, with the survey suggesting output is falling at its fastest pace since 2009. The extra holiday for Jubilee weekend was one factor in the lower print, but with new orders, input buying, and employment also coming off, there is little to support a quick turnaround. This is the least important of the three PMIs for BoE policymaking, but supports the picture of a broadening softening of data. It is clear the market has already moved on to pricing bad data as "good" for risk, however, as the result saw sterling rally on firmer expectations of easing," says Osborne.

Turning to the euro, Italian PM Monti is scheduled to address the Senate today at 3:30pm BST on the results of last week’s Summit.

Given the market expectation that Italy will be requesting EFSF/ESM purchases of Italian debt on the secondary market, and growing political pressures domestically to some of his reforms, his comments may help add some further clarity to the Eurozone issues.

Looking at the Australian dollar, the RBA Board left the cash rate unchanged at 3.50%, as expected by the (unanimous) consensus.

The tone of the RBA communiqué was cautious. The Board described its stance of policy as “appropriate” and in doing so, did not communicate an urgency to cut rates further in the very near term.

However, there was a clear downgrade to the RBA’s global growth outlook, suggesting that the door has been left open for further rate cuts. We leave our ‘base case’ -25bp cut unchanged today, but acknowledge that the timing of the next cut has become somewhat more uncertain, following today’s decision.