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Pound recovers off lows despite waning global risk appetite

GBP - British Pound

The pound came close to falling back below the 1.26 level vs. the US dollar yesterday, its cause not helped by the release of weaker than expected UK Manufacturing PMI for May that morning. The index printed at 49.1 vs. expectations for 52.5, the first time Britain's manufacturing sector has contracted following the Brexit referendum in 2016 and partly a result of intensive stockpiling back in March, ahead of the previous Brexit deadline. As well as Brexit uncertainty, global trade tensions and a slowdown in the autos sector contributed.

Construction PMI is up next and expectations are for a print of 50.6. Any weaker or moreover a print below 50.0 (the difference between expansion and contraction) - could see GBP/USD fall back towards 1.26 this morning.

Key Movers

Meanwhile US - China trade tensions continue to bubble away. The rhetoric at the moment might best be described as tit for tat with China warning its citizens today against travel to the US until the end of 2019. In other trade related news, it seems Congressional Republicans may end up blocking Trump's proposed tariffs on Mexico - whether Trump knew this all along is another question - but it's helped markets to breathe a sigh of relief for now.

Overnight, the Reserve Bank of Australia cut interest rates by 25 basis points to 1.25%, a move that was almost 100% priced in in the immediate lead up to the announcement. The aussie has strengthened on the news, but traders will be cautious of bidding AUD/USD higher through .7000 ahead of the RBA's press conference due any minute now. Specifically, investors will be listening carefully for signals on future rate cuts.

Looking further ahead, US Fed Chair Powell is due to speak today. Amid speculation that the Fed may begin a cycle of interest rate cuts soon - some speculation more aggressive than others - it's an important event as far as traders are concerned.

Later tonight, Australian GDP is released - another key set of Australian data - and may either underline or bring forward market expectations for further rate cuts, or mean investors are left scratching their heads.

Expected Ranges

GBP/USD: 1.2625 - 1.2690 ▼

GBP/EUR: 1.1200 - 1.1300 ▼

GBP/AUD: 1.8000 - 1.8240 ▼

GBP/NZD: 1.9100 - 1.9270 ▼

GBP/CAD: 1.6920 - 1.7110 ▼