Whilst most British people took an extended Christmas break – using up only 3 days’ holiday allowance gave a 10-day vacation – the pound had a good week against a very soft US Dollar but was otherwise pretty mixed with losses against the CAD, AUD and NZD. The New Year has seen this trading pattern continue. GBP/USD reached a high of 1.3562 in London this morning; just shy of its mid-September high of 1.3690 which, in turn, was its strongest point in the whole of 2017. Against the buoyant EUR it is down 20 pips at 1.1230 and is unchanged against all three other versions of the Dollar: the Canadian, Australian and New Zealand varieties.
This mixed price action comes against a backdrop of a softer than expected manufacturing PMI report which printed at 56.3 in December; well down from November’s 51-month high of 58.2. Although December saw rates of expansion in output, new orders and employment slow from November’s highs, growth in all three components remained solid and well above long-run trends. And, despite the uncertainties of Brexit, the headline PMI has now remained above the 50.0 no-change mark for 17 consecutive months.
On the inflation front – which will be crucial for the Bank of England’s Monetary Policy Committee in 2018 – Markit reported the rate of increase in input costs eased to a 4-month low in December, but remained marked overall. Companies linked higher costs to rising raw material prices, input shortages, suppliers raising their prices and the exchange rate. The cost of chemicals, electrical goods, electronics, metals, paper, plastics, timber and utilities were all reported as higher.
Part of the increase in purchase prices was passed on in the form of higher output charges in December. Selling prices rose for the twentieth successive month with companies linking the latest increase in charges to stronger demand.
Ahead of the construction PMI tomorrow and the service sector index on Thursday, the pound opens in North America this morning at USD1.3540, EUR1.1220 and CAD1.6980.