Pound Falls as PMIs Disappoint, US Dollar Soars in Jittery Trade

Pound (GBP) Slumps Following Poor PMI Figures

The Pound (GBP) slumped against the majority of its competitors today on the back of poor PMI figures and ongoing political uncertainty surrounding UK Prime Minister Boris Johnson.

Business activity in the UK fell to an 11-month low in January, whilst activity in the country’s services sector fell into a third downturn as the Omicron variant kept consumers away. Soaring consumer prices and business costs continued to rise however, increasing expectations of an interest rate hike by the Bank of England (BoE).

The Pound could see a dip this week as business confidence for the UK’s first quarter is expected to fall on Tuesday. Sterling is also likely to affected by ongoing calls for PM Boris Johnson’s resignation, with the report into illegal gatherings at 10 Downing Street expected later in the week.

Euro (EUR) Climbs Following Optimistic German PMIs

The Euro (EUR) has been boosted by risk-averse trading as well as positive PMI data from the Germany, the Eurozone’s largest trading bloc. Better than forecast manufacturing activity for the Eurozone is also likely to have pushed the currency up.

Despite the upturn in activity across all German sectors, economic recovery across the Eurozone weakened in the face of soaring Covid-19 cases and business restrictions. Customers across the trading bloc stayed at home in the face of the Omicron variant, although businesses reported an easing of supply chain disruptions.

Looking to the rest of the week for the Euro, a forecast fall in January’s economic sentiment on Friday could pull the currency down. German figures on Friday are expected to be less optimistic than Monday’s, with a fall to the country’s GDP growth rate in the fourth quarter.

US Dollar (USD) Boosted by Risk-Off Market Mood

The US Dollar (USD) rose today amid strong demand for the currency and a risk-off trading mood as investors flocked to the safe-haven ‘Greenback’. Gains for the currency may be capped however following an above forecast fall across all sectors in the US.

Activity in the US services sector fell to its lowest level since July 2020 whilst manufacturing dipped to its lowest point since October 2020. Covid-19 cases in the US hit a record level of 1.35 million earlier in January leading to severe labour shortages and supply chain disruptions.

Looking to the rest of the week for USD, all eyes will be on the meeting of the US Federal Reserve on Wednesday. Whilst the Fed is expected to leave interest rates unchanged, the central bank is expected to signal an aggressive rate rise schedule ahead of its next meeting in March.

Australian Dollar (AUD) Nosedives as Covid-19 Cases Surge

The Australian Dollar (AUD) plummeted against its rivals today amid a risk-off market mood and a further surge in Covid-19 deaths recorded on Monday. Ongoing woes in the Chinese property sector may have also pulled the ‘Aussie down’.

Looking ahead, Tuesday’s forecast rise to the country’s rate of inflation could pull AUD further as the country struggles to balance unlocking the economy and Covid-19 case numbers.

Canadian Dollar (CAD) Dips as Oil Prices Fall

The Canadian Dollar (CAD) fell against safe-haven today as a risk-averse trading sentiment dominates the markets. The commodity-tied ‘Loonie’ is also likely to have been affected by falling oil prices. A strong US Dollar and expectations of future rate rises by the US Federal Reserve caused the price to fall to $83.44 a barrel on the WTI.

The rest of the week for the Canadian Dollar is likely to be dominated by the Bank of Canada’s (BoC) interest rate decision on Wednesday which is forecast to remain unchanged. Investors will be watching closely for any hints of hawkish forward guidance from the central bank.