IFX Market Report
Thursday 5th October 2017

Market Report

Better-than-expected Services PMI help the pound recover from a 2-week low against the euro. PMI Services rose to 53.6 points in September from an 11-month low of 53.2 in August. This crucial index accounts for three quarters of the UK economy and far outweighs the negative data released by the Manufacturing and Construction PMI’s released earlier in the week

Off the back of the unexpected rise, sterling hit the day’s high of 1.1333 against the euro. However the pound failed to hold on to the gains as the markets digested the PMI data more carefully. New orders increased at the weakest pace since last August, confidence dropped and price pressures were at the highest level in months. GBPEUR went on to close at 1.1281, almost exactly where it opened in the morning.

GBPUSD opened at 1.3249 and rose to 1.3278 after the PMI data, yet unlike GBPEUR, the pound managed to hold to the majority of its gains and closed at 1.3273.

Worldwide News

Eurozone Composite PMI posted a 4-month high, whilst Services PMI read 55.8, a 6-year high and above 55.6 points as expected. Individually, Spain beat their estimate with 56.7 vs 55.5, German met expectations at 57.0 whilst France and Italy fell short.

In the US, the ADP Employment Change came in at 135k, the data showed the number of private businesses hired more than the 125k expected in September, but’s marked the lowest level for 11 months. The report shows large businesses are still hiring, whilst smaller firms are letting employees go.

The Institute for Supply non-Manufacturing (ISM) index rose to 12-year highs of 59.8 vs 55.5 expected, the highest level it has been since August 2005. Many had expected the recent hurricanes were going to have had an impact on the data, but the numbers were high due to an increase in production and new orders.

Despite the strong data results the dollar weakened, the dollar index which measures its strength against a basket of currencies fell to 93.259. EURUSD followed the previous day and traded within a narrow band, opening at 1.1753, the high was 1.1783 and the pair went on to close at 1.1758

Today sees Fed Chair hopeful Jerome Powell speaking later today, his potential appointment has led to the dollar softening as his dovish stance on monetary policy is not especially popular with market participants.

The minutes from the recent ECB meeting are published later and will be of interest to investors. The ECB are very close to pulling the trigger on tampering the asset purchase programme. With the euro coming under recent pressure due to political uncertainty, if clues emerge that tapering will begin at the Oct 26th meeting, the euro will undoubtedly reverse much of its recent losses.