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Pound Reverses Despite Stronger Manufacturing

A UK Manufacturing PMI Print Well Above Estimates Sends the Pound Surging Versus Peers

british-pound

The Pound posted weekly highs across the board yesterday on an upbeat manufacturing PMI only to trim its gains by yesterday’s close. Focus turns to the construction PMI due for release today with expectations of a soft print at 58.9, down from 59.9 previously.

UK PMI Touches Highs

Surprisingly, the UK's manufacturing PMI rose dramatically in October to 55.5, posting a 16-month high after this indicator previously served as a drag on GDP results for the third quarter. The prior month's manufacturing PMI data was also revised softly higher to 51.8 from 51.5 previously. Manufacturing output increased to 58.3 on new orders which jumped 56.9, printing at the highest level since July 2014, rebounding from recent softness. The manufacturing PMI data showed that domestic orders were the primary driver in the resurgent manufacturing sector. The manufacturing employment index also managed to beat expectations after data arrived at a 17-month high. The British Pound reacted positively to the news with GBPUSD briefly posting a weekly high at 1.5467, before retreating substantially and ending the session on a weaker note at 1.5410.

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US ISM Survey Holds Steady

The Institute of Supply Management manufacturing index for October was relatively steady at 50.1, despite falling marginally from 50.2 in the prior month. The data beat initial contractionary estimates of 49.5, although it remains on the cusp of the expansionary threshold. New orders were attributed to the soft increase as they rose to the highest level since July with production seen to be gaining, rising to 52.9 from 51.8 previously. The employment sub-component declined sharply however to 47.6 from 50.5 previously which points to headwinds facing the goods sector employment. Export orders were also weak, marking a fifth consecutive month of decline at 47.5. The manufacturing sector continues to struggle as a stronger US Dollar keeps foreign demand for exports subdued. EURUSD was weaker yesterday despite opening higher at 1.1030. The single currency closed yesterday’s session at 1.1014.

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RBA Keeps Cash Rate on Hold

The Reserve Bank of Australia opted to leave the interest rate unchanged at 2.00% during today's monetary policy meeting. Australia's interest rates remain at historical lows for the sixth consecutive month in a row after the last rate cut of 25 basis points was delivered in May. The RBA's latest monetary policy decision did not come as a surprise to market participants with most economists polled expecting to see the Central Bank hold steady. The RBA's decision to stand pat on policy follows other major Central bank decisions over the past weeks including the Bank of Japan and Bank of Canada which chose to keep monetary policy unchanged after the Federal Reserve hinted last month that it was considering a rate hike in December. The Australian dollar reacted positively to the news trading at 0.7190 but not before spiking lower to 0.7110.

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NZD Risk Factors Include GDT and Unemployment

The New Zealand dollar will see some important economic releases today starting with the Global Dairy Trade Price Index, which as of the last reading declined -3.10%. Later in the session, the quarterly employment change is due with expectations of a marginally stronger reading of 0.40%, up from 0.30% in the prior quarter while the New Zealand unemployment rate is expected to tick a notch higher to 6.00%, up from 5.90%. The seemingly pessimistic outlook for global commodity markets and further accommodation from the Central Bank combined with a higher unemployment rate is likely to put the New Zealand dollar under continued pressure. The NZDUSD pair has recently enjoyed a strong rally before momentum showed signs of waning in the middle of the last week. NZDUSD closed yesterday’s session at 0.6744 and remains largely range bound in relation to Friday’s price action.

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