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Pound May Extend Drop as Soft PMI Data Trims BOE Rate Hike Bets

Pound May Extend Drop as Soft PMI Data Trims BOE Rate Hike Bets

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • British Pound May Extend Drop as Soft PMI Data Trims BOE Rate Hike Bets
  • US ISM May Set Precedent for Risk Trends’ Response to Shifting Fed Outlook
  • See Economic Releases Directly on Your Charts with the DailyFX News App

UK Manufacturing PMI data headlines the calendar in European trading hours. The gauge is expected to tick lower to 51.3 in September, pointing to the slowest pace of factory-sector activity growth since April 2013. UK economic news-flow has increasingly underperformed relative to consensus forecasts over the past month, opening the door for a downside surprise. Such an outcome may undercut BOE rate hike expectations, weighing on the British Pound.

Later in the day, the US ISM Manufacturing report will come into the spotlight. Economists predict slowdown here as well, with the third consecutive month of deceleration seen yielding the most sluggish growth since May 2013. A soft print may undermine Fed tightening speculation, weighing on the US Dollar.

The likely implications for risk appetite are a bit more complex however. At various times in recent weeks, the prospect of a nearing Fed hike seemed to boost sentiment because of what such a move would say about the health of the US economy. At other times however, it spooked investors worried about the implications of a policy roadblock to US growth at a time when the Eurozone remains sluggish and China continues to slow. Seeing which narrative proves dominant may help establish a benchmark for Friday’s higher-impact US employment figures.

On the commentary front, scheduled remarks from Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams are in focus. Both policymakers have spoken in favor ofstarting stimulus withdrawal this year in recent days and seem likely to do the same this time. With that in mind, the threshold for a market-moving headline emerging out of either speechseems relatively high.

The Australian, Canadian and New Zealand Dollars outperformed while the anti-risk Euro and Japanese Yen came faced selling pressure in overnight trade as sentiment firmed. The move appeared to take its cues from an upbeat lead from Wall Street, where shares rose for the first time in five days. Upbeat manufacturing PMIs from Australian, Japan and China likewise helped.

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Asia Session

GMTCCYEVENTACTEXPPREV
23:00NZDQV House Prices (YoY) (SEP)12.6%-11.3%
23:30AUDAiG Perf of Mfg Index (SEP)52.1-51.7
23:50JPYTankan Large Mfg Index (3Q)12.013.015.0
23:50JPYTankan Large Mfg Outlook (3Q)10.010.016.0
23:50JPYTankan Large Non-Mfg Index (3Q)25.020.023.0
23:50JPYTankan Large Non-Mfg Outlook (3Q)19.019.021.0
23:50JPYTankan Large All Industry Capex (3Q)10.9%8.7%9.3%
23:50JPYTankan Small Mfg Index (3Q)0.0-2.00.0
23:50JPYTankan Small Mfg Outlook (3Q)-2.0-4.00.0
23:50JPYTankan Small Non-Mfg Index (3Q)3.01.04.0
23:50JPYTankan Small Non-Mfg Outlook (3Q)1.00.01.0
00:00AUDCoreLogic RP Data House Px (MoM) (SEP)0.9%-0.3%
01:00CNYManufacturing PMI (SEP)49.849.749.7
01:00CNYNon-manufacturing PMI (SEP)53.4-53.4
01:30AUDJob vacancies (AUG)2.7%-2.1%
01:35JPYNikkei Japan PMI Mfg (SEP F)51.0-50.9
01:45CNYCaixin China PMI Mfg (SEP F)47.247.047.0
01:45CNYCaixin China PMI Composite (SEP)48.0-48.8
01:45CNYCaixin China PMI Services (SEP)50.5-51.5
05:00JPYVehicle Sales (YoY) (SEP)-3.0%-2.3%
06:30AUDCommodity Index AUD (SEP)-79.7
06:30AUDCommodity Index (YoY) (SEP)--20.9%

European Session

GMTCCYEVENTEXPPREVIMPACT
07:15CHFRetail Sales Real (YoY) (AUG)--0.1%Low
07:30CHFprocure.ch Mfg PMI (SEP)51.852.2Medium
07:45EURMarkit/ADACI Italy Mfg PMI (SEP)53.453.8Low
07:50EURMarkit France Mfg PMI (SEP F)50.450.4Low
07:55EURMarkit/BME Germany Mfg PMI (SEP F)52.552.5Medium
08:00EURMarkit Eurozone Mfg PMI (SEP F)52.052.0Medium
08:00CHFKOF Institute Autumn Economic Forecast --Low
08:30GBPMarkit UK PMI Mfg SA (SEP)51.351.5High

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.09901.10941.11351.11981.12391.13021.1406
GBPUSD1.49381.50441.50861.51501.51921.52561.5362

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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