The global capital markets are quiet today, as investors await fresh impetus which could come in the form of tomorrow’s US national employment figures. There is also next week’s ECB meeting that looms large for investors.
The euro is trading quietly. In fact, through the European morning, the euro has been confined to a little more than a third of a cent above $1.0850. It has not been above $1.09 since Monday, and despite contrasting economic signals, and the anticipation of more easing by the ECB, the single currency has not been pushed through $1.08.
The dollar is straddling the JPY114.00 range, inside yesterday’s range. With a little more effort to test the nearby cap in the JPY114.55-JPY114.85 range, the five-day moving average could cross above the 20-day average for the first time since early February.
Sterling extended yesterday’s recovery to poke briefly through $1.4100 and reached its highest level since February 23. The $1.4125 area corresponds to a retracement objective since EU Summit that struck the agreement with Prime Minister Cameron, which was shortly followed by London Mayor Johnson’s decision to campaign for Brexit.
Although sterling’s advance is mostly about market positioning and the unwinding of some momentum trades, including on the crosses, macro considerations have stalled its recovery. The service sector PMI today completed the trifecta of disappointing reports. All three–manufacturing, construction, and services–all came in below expectations. The service PMI was expected to soften a little from the January 55.6 reading. It actually fell to 52.7, the lowest in about three years.
The surveys warn that the UK economy may be losing some momentum prior to whatever disruptions the Brexit uncertainty generates. However, positioning is still key and sterling may prove resilient to the disappointing economic news after the knee-jerk reaction as it has done in recent days.
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