Daily Currency Update

Get access to our expert daily market analyses and discover how your currency has been tracking with our exchange rate tools.

FOMC Minutes help support USD. Solid China PMI push AUD and NZD higher. GBP and EUR mixed ahead of economic data.

By Nick Parsons

The pound got the New Year off to a very good start on Tuesday and by the London opening on Wednesday it extended its gains further to reach USD1.3608; its highest since the day after the EU referendum back in June 2016. From that point on, however, it has been downhill all the way and the pair tumbled more than a full cent yesterday, with the pound losing ground against every one of the major currencies we track here.

The latest UK PMI construction numbers were certainly disappointing, and the year finished in a downbeat fashion. The headline index fell to 52.2 in December from 53.1 as a robust rise in residential building contrasted with falling work on commercial projects and stagnating civil engineering output. Survey respondents indicated that house building remained a key engine of growth, with residential work expanding for the sixteenth consecutive month in December. In contrast, latest data indicated a moderate fall in commercial construction, thereby continuing the downward trend seen since July. Civil engineering work stabilised during the latest survey period, which ended a three-month period of decline.

As Markit noted in their Press Release, “construction firms indicated that longer term business confidence is still relatively subdued, largely reflecting concerns about the domestic economic outlook. 37% of the survey panel forecast a rise in construction activity over the course of 2018, while around 11% anticipate a reduction. As a result, the balance of UK construction companies expecting growth in the year ahead remains among the weakest recorded by the survey since mid-2013”.

Ahead of the service sector PMI today, the GBP opens in Europe this morning at USD1.3525 with GBP/AUD at 1.7230 and GBP/NZD1.8995.

After almost three weeks of steady but relentless selling which took its index against a basket of major currencies down from 93.80 on December 12th to a low on January 2nd of 91.44, the US Dollar finally found support in the Northern Hemisphere yesterday. It wasn’t just about the economic data (see below) as the USD turned higher before the latest US numbers were released. By the end of the London afternoon, however, the Dollar Index had moved up to a high of 91.88 and after the FOMC Minutes were published, it managed to push a little higher still. Overnight in Asia it has slipped back a little to 91.77.

The solid economic news began with the December ISM manufacturing survey which rose to 59.7 from 58.2, above the consensus forecast for an unchanged 58.2. very encouragingly, the New Orders Index registered 69.4; an increase of 5.4 points from the November reading of 64.0. Comments from the panel reflected expanding business conditions, with new orders and production leading gains; employment expanding at a slower rate; order backlogs expanding at a faster rate; and export orders and imports continuing to grow in December.

Away from manufacturing, November construction spending rose a stronger than expected 0.8% after a +0.9% gain in October and was the fourth consecutive monthly increase. The November rise was led by a solid advance in homebuilding and a 4.8% post-hurricane leap in spending on home improvements. Non-residential construction rebounded 0.9% in November after declining four of the last five months, led by office building, which rose 5.5%.

Later in the US afternoon, the Minutes of the December FOMC Board Meeting were published. As ever, there’s something for everyone in these and you can always find a wide spread of views expressed. Some members said a faster trajectory of rate hikes may be needed whilst several officials were concerned by low inflation expectations. A couple were concerned by financial stability risks but most backed gradual rate hikes. The main takeaway, though, is that the two dissenters will not be voting members in 2018 and the market-derived probability of a March rate hike has gone up from 56% to 67%.

The US Dollar index opens in Europe this morning at 91.77; up around 30 pips from its recent low.


After a year in which the euro was the best performing of all the major currencies, it got off to a flying start in 2018; with a high on Tuesday morning of 1.2077; the highest in over 3 years. It couldn’t sustain its very positive momentum throughout the day and finished in New York around 30 pips below its best level. On Wednesday the pullback continued, with a day’s low of just 1.2006 though overnight in Asia it has rallied back to USD1.2025.

The modest pullback in the EUR comes despite a very good set of German labour market data. The seasonally adjusted jobless total dropped by 29,000 to 2.442 million; more than double the 12,000 consensus forecast. December's unemployment rate was 5.%, the same as a revised reading for November and the lowest level since German reunification in 1990, the office said. In 2017 as a whole, the rate fell to 5.7% from 6.1% the previous year. The detailed numbers showed Germany's workforce expanded last year to a record 44.3 million, whilst the Labour Office said there were 761,000 job vacancies in December, suggesting companies are struggling to find skilled workers quickly.

Of course, whilst the German data are very impressive, they have rather lost their power to surprise on the upside, given that expectations are already so elevated. Ahead of Eurozone aggregate and individual countries’ PMI services reports, the EUR opens in Europe at USD1.2025 and GBP/EUR1.1245.

As gold hit its highest level since September 15th at $1320 per ounce in Asia yesterday, the AUD has continued to meet with solid investor demand in these first few trading days of 2018. AUD/USD has been on a US 78 cents big figure for all but a few minutes of this first week of the New Year. Overnight in Asia the AUD has rallied further to 0.7853, driven this time not by commodity prices, but a very good set of Chinese PMI numbers.

We said here earlier this week that, “the Aussie Dollar still remains sensitive to Chinese numbers. These are important for Australia as China is the number one export destination, the largest market for agricultural goods and the most valuable inward tourism market. Australia needs a strong Chinese economy if it is to grow itself”. The Caixin China Composite PMI data (which covers both manufacturing and services) signaled a solid upturn in Chinese business activity at the end of 2017. At 53.0, the Composite Output Index picked up from 51.6 in November to indicate the fastest rate of activity growth for a year.

Steep increases in activity were registered across both the manufacturing and service sectors during December. Notably, services companies recorded the quickest expansion in activity since August 2014. Meanwhile, manufacturing output increased at a pace that, though modest, was the strongest seen for three months. Business confidence in the 12-month outlook for activity improved across both the manufacturing and service sectors at the end of the year. Services companies expressed the greatest degree of optimism since June, while sentiment at manufacturers picked up from November’s joint-record low.

Ahead of Australia’s November trade figures on Friday morning, the AUD opens in Europe this morning at a fresh 10-week high of USD0.7856 with AUD/NZD at 1.1025 and GBP/AUD1.7225.

Having USD1.2500 (or 80 US cents when quoted the other way round) for the first time since October 20th on Tuesday, the Canadian Dollar paused yesterday even as oil prices extended recent gains. USD/CAD spent most of the day in a 1.2505-1.2540 range and in Asia overnight it has settled back to the mid-point of that band.

Both Brent crude oil and US benchmark West Texas Intermediate rallied yesterday as the political unrest in Iran (the third largest OPEC producer which pumps around 3.8m barrels per day) came into focus. Brent crude reached $67.62 – up more than 1.5% on the day before easing slightly. WTI rose 1.8% to $61.52, a level not seen since June 2015.

Meantime, the cold weather intensifies across North America. Winter Storm Grayson, a very large and powerful weather system is threatening the East Coast of the United States with heavy snow, intense winds, and record-setting low temperatures. The cold front has sent temperatures below freezing in more than 92% of the Continental United States. Winter storm watches and warnings have been issued for many coastal regions in north Florida to Maine and hurricane-force wind warnings have been posted off the coast of North Carolina. Further north and into Canada, the forecast shows the temperature in Toronto is not expected to rise above minus 10 degrees centigrade at any point over the next three days with lows of minus 25 degrees forecast on Friday.

The big test for the CAD will come with December’s employment report on Friday. Before then, the Canadian Dollar opens in Europe this morning at USD1.2525 with GBP/CAD at 1.6935.

The New Zealand Dollar is beginning to show some of the day-to-day volatility which characterized it in early December when it would regularly swing from being the day’s strongest currency to the very worst. Yesterday it showed some signs of under-performance with the AUD/NZD cross moving up to a 1-month high of 1.1050 in the New York session and the NZD/USD pair struggling to hold on to a US 71 cents big figure. Overnight, however, it is at the top of the FX pile with AUD/NZD down to 1.1025 and NZD/USD back up to 0.7117.

As with the Australian Dollar, the lift to the Kiwi came not from domestic economic data, but the strength of the Chinese PMI numbers. Buried beyond the headlines, the report noted, “Average input costs faced by services companies in China increased at a solid and accelerated rate in December. Furthermore, the rate of inflation was the joint-quickest since February 2013 (on par with March 2017). Raw materials, transportation and salaries were all cited as having gone up in price in the latest survey period.” One country’s input costs are, of course, another country’s exports and both NZ and Australia send a large portion of their goods in to China; industrial metals for Australia, dairy and lumber for New Zealand.

The New Zealand Dollar opens in Europe this morning at USD0.7117 with GBP/NZD at 1.8995.