The biggest talking point of yesterday came from the US as manufacturing output contracted for the first time in six months, causing the US dollar to fall against most of its peers.

With investors looking to gauge the likelihood of a reduction in quantitative easing by looking at how strong economic data may be; yesterday’s poor figure stoked expectations that the Federal Reserve may not be in a rush to start tapering QE and thus we saw the US dollar weaken across the board.

The biggest talking point of yesterday came from the US as manufacturing output contracted for the first time in six months, causing the US dollar to fall against most of its peers.

With investors looking to gauge the likelihood of a reduction in quantitative easing by looking at how strong economic data may be; yesterday’s poor figure stoked expectations that the Federal Reserve may not be in a rush to start tapering QE and thus we saw the US dollar weaken across the board.

Manufacturing PMI from the euro zone came in at 48.3 in May, surpassing expectations as well as showing an improvement from April’s reading of 47.8. However whilst the figures were an improvement, manufacturing output remains contracted as it remains under the all important 50 mark.

Data from the UK revealed that manufacturing PMI expanded for the first since January, coming in at 51.5 beating a forecasted expansion of 50.2. The pound made broad gains as the data would suggest to investors that the BoE may refrain from expanding its QE programme anytime soon.

Following the sell-off of commodity linked currencies last week, yesterday we saw the Australian dollar, New Zealand dollar and notably the South African rand bounce from technical oversold levels to finally catch some respite. Sterling’s moves against these currencies remains in an uptrend but do not be surprised for a move lower down first before we see a possible resumption of the current trend.

GBPINR has been on the rise over the last 6 days, closing yesterday at the top of its current trading price range. However, as above, with technical studies suggesting that the rupee may be overbought at current levels, we may well see profit taking on recent moves for the pound against the rupee and thus may well see GBPINR start to trade lower.

Overnight we saw the Reserve Bank of Australia keep interest rates at 2.75%, but reiterated their bias that due to the nation’s inflation outlook, there is potential scope for a further reduction in the interest rate. As a result, we saw the Australian dollar weaken by 0.5% against the pound.

Looking ahead to today, UK PMI construction for May is forecasted to come in higher than April’s reading, however the data is set to show that the sector shrank for a seventh month in a row.

Producer price inflation from the euro zone is set to reveal a fall to 0.3% in April. Earlier this morning, we had good data from Spain, which revealed that the number of people out of work fell by almost 100,000, more than the market had been expecting and thus giving the euro early support.

Also data from the US is set to reveal that the nation’s trade deficit is set to increase to US$41bn.

Key Announcements:

9.30am – GBP – PMI Construction (May): Expected to improve to 49.6.

13.30pm – USD – Trade Balance (Apr): The deficit is expected to increase to US$41bn