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UK PMI Miss Boosts Equities, AUD/USD May Rise Before Trump SOTU

UK PMI Miss Boosts Equities, AUD/USD May Rise Before Trump SOTU

Daniel Dubrovsky, Contributing Senior Strategist
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Asia Pacific Market Open Talking Points

  • Soft UK PMI data triggered risk-on rally as British Pound plummeted ahead of BoE
  • RBA Governor Philip Lowe speech may bode well for the pro-risk Australian Dollar
  • All eyes on Donald Trump’s State of the Union address, Japanese Yen may weaken

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Major Market Developments Tuesday

Global benchmark stock indexes generally extended their gains in another ‘risk-on’ rally as the S&P 500 matched its best winning streak since January 10 (5 days). The trigger seemed to stem from the United Kingdom after disappointing economic data crossed the wires ahead of this week’s Bank of England ‘Super Thursday’ event.

There, local services PMI clocked in at 50.1 versus 51.0 expected, the softest pace of growth since July 2016 which was a month after the Brexit Referendum. Looking at the chart below, UK government bond yields tumbled as the FTSE 100 soared. S&P 500 futures picked up on the gains, leading to the rally on Wall Street. Bets of a BoE rate hike later this year declined as the British Pound tumbled across the board.

GBP/USD and Market Reaction to UK Services and Composite PMI Data

GBP/USD and Market Reaction to UK Services and Composite PMI Data

Chart created in TradingView

This also seemed to be the case for Fed rate hike bets, notable since the central bank highlighted external risks to their outlook (a hard Brexit included). The US Dollar aimed cautiously higher, perhaps due to the intense weakness in Sterling. But gains somewhat tapered later in the day. Pro-risk currencies such as the Australian and New Zealand Dollars aimed a little higher thanks to the upbeat mood in investors.

Asia Pacific Trading Session

Wednesday’s Asia Pacific trading session contains a couple of notable economic event risk. The first will be a speech from RBA Governor Philip Lowe after yesterday’s interest rate decision. Here, the Australian Dollar could climb if Mr. Lowe continues to undermine dovish policy expectations. This could especially be the case if he continues to favor their next adjustment as a rate increase and not a cut.

Then, at 2:00 GMT US President Donald Trump is expected to deliver his State of the Union address. Topics here that could impact market volatility are those about the chances of another government shutdown and any progress on US-China trade talks. S&P 500 futures are pointing a little bit higher which may precede cautious gains in regional bourses. This could bode ill for the anti-risk Japanese Yen. Technically speaking, the Australian Dollar could be on the verge of extending gains by the end of this week.

US Trading Session

US Trading Session

Asia Pacific Trading Session

Asia Pacific Trading Session

** All times listed in GMT. See the full economic calendar here

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--- Written by Daniel Dubrovsky, Junior Currency Analyst for

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.