The British Pound is still in snooze mode on Monday.
• UK Manufacturing PMI comes in line with expectations at 52.5 in August.
• The US Dollar Index opens up steadily, with US markets closed for public holidays.
The British Pound (GBP) holds on to marginal gains during the European trading session on Monday, with US markets closed in observance of Labor Day. This means very slim volumes, even thinner than on a typical Monday. However, the UK market already had to digest the S&P Global/CIPS Purchasing Managers Index (PMI) for the manufacturing sector this morning, which fell in line as expected at 52.5.
Meanwhile, the US Dollar Index (DXY) – which gauges the value of the US Dollar against a basket of six foreign currencies – is still recovering from a chunky selloff over a week ago. Last week, though, the Greenback recovered on some strong US economic data, which might limit the initial rate cut from the US Federal Reserve (Fed) to only 25 basis points in September. With more PMI data set to come out this week and the US Jobs reports on Friday, it will all depend on this week’s data to confirm the interest rate cut size next week.
Daily digest market movers: A very slow start for all
• S&P Global released its Manufacturing Purchasing Managers Index (PMI) for August, coming at 52.5, the same pace as the previous month.
• US markets are closed in observance of Labor Day on Monday.
• The CME Fedwatch Tool shows a 69.0% chance of a 25 basis points (bps) interest rate cut by the Fed in September against a 31.0% chance for a 50 bps cut. Another 25 bps cut (if September is a 25 bps cut) is expected in November by 48.9%, while there is a 42.0% chance that rates will be 75 bps (25 bps + 50 bps) below the current levels and a 9.1% probability of rates being 100 (25 bps + 75 bps) basis points lower.
• Regarding the Bank of England (BoE), markets are pricing in no rate cut for the September 19 meeting, while the November 7 decision has an 87.2% near certainty of seeing the BoE cut rates by 25 basis points.
• The US 10-year benchmark rate trades at 3.90% and will not move on Monday due to the US bank holidays.
• The UK 10-year Gilt Benchmark trades at 4.06% and popped higher on Monday after closing at 4.01% on Friday.
• European equities are eking out more losses, losing over 1% on the day. The UK’s FTSE 100 is less negative and flirts with less than 0.5% of losses.
GBP/USD turned south on renewed US Dollar (USD) strength and lost 0.7% last week. The pair fluctuates in a very narrow band in the European session morning but the technical outlook suggests that the bearish bias stays intact.
Upbeat macroeconomic data releases from the US provided a boost to the USD in the second half of the previous week. On Friday, the data published by the Bureau of Economic Analysis showed that the core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's (Fed) preferred gauge of inflation, rose 0.2% on a monthly basis, as forecast. This reading allowed the USD to extend its rebound into the weekend.
The economic calendar will not offer any high-impact data releases that could drive GBP/USD's action on Monday. Furthermore, financial markets in the US will remain closed in observance of the Labor Day holiday, paving the way for an extended sideways action in the pair.
The ISM will release Manufacturing and Services PMI data for August later this week. More importantly, the US Bureau of Labor Statistics will publish the August jobs report on Friday, which will include Nonfarm Payrolls, Unemployment Rate and wage inflation figures.
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