03/05/2017 - UK Manufacturing Data Beats Expectations

GBP

Sterling was given only a temporary lift by stronger-than-expected manufacturing data on Tuesday, with traders focusing more on developments showing the rest of the European Union taking a tough stance on Britain's exit from the bloc.

On the first day of trading after a long weekend across Europe, sterling inched down against the euro and traded flat against the dollar, even after numbers showing UK manufacturing growth surged to a three-year peak in April, beating all forecasts.

Britain’s factories enjoyed their fastest growth for three years last month on the back of strong demand at home and abroad, according to a survey that will temper worries about a Brexit-driven economic slowdown this year.

The manufacturing sector, which makes up about a tenth of the UK economy, enjoyed the strongest pick-up in new work since the start of 2014 and smashed expectations in April. Firms also took on new workers at a faster pace and ramped up production.

The latest manufacturing report signalled that strong demand came from the domestic market as well as overseas, continuing a pattern of export support for UK firms from the weaker pound. Sterling’s sharp fall since the Brexit vote has made UK goods cheaper in foreign markets.

USD

The U.S. dollar hit a six-week high against the yen on Tuesday, as traders discounted weak U.S. economic data and anticipated that the Federal Reserve would prepare markets for an interest rate increase in June in it's Wednesday statement.

Analysts said the data was not enough to stifle risk appetite, which in turn hurt the safe-haven yen. Some analysts also said the closure of Tokyo markets for the Golden Week holidays was contributing to a lack of liquidity in the yen, which exacerbated its weakness against the dollar and the euro.

Along with the Fed statement, traders were awaiting Friday's U.S. April non-farm payrolls report from the U.S. Labor Department. Economists polled by Reuters expect U.S. employers to have added 185,000 jobs last month, up from March's 98,000.

EUR

French presidential candidate Marine Le Pen renewed her attack on the European Union's euro single currency on Sunday, a day after saying that ditching it might not be her top priority.

The National Front (FN) candidate has a week to overturn the opinion poll lead of pro-EU centrist Emmanuel Macron before the run-off vote between the two on May 7. Voter surveys show Macron winning next Sunday with 59-60 percent of the vote, and Le Pen's plans to quit the EU and the euro are among the least popular policies in her protectionist, anti-immigration electoral platform.

Analysts were not surprised on Saturday, therefore, when a new FN policy document pushed ditching the euro down the list of her priorities. They said it was in part aimed at older voters who might be worried about the potential impact on the value of their pensions of a return to the franc.
 

Key Announcements 

09.30 – GBP : Construction PMI; Forecast at 52.1 against a previous of 52.2

13.15 – USD : ADP Non-Farm Employment Change; Forecast at 178k against a previous of 263k

15.00 – USD : ISM Non-Manufacturing PMI; Forecast at 56.1 against a previous of 55.2

15.30 – USD : Crude Oil Inventories

19.00 – USD : FOMC Statement

19.00 – USD : Federal Funds Rate