GB POUND
The pound started the week on the back foot again trading at 1.1841 against the euro and 1.3218 against the US dollar, the bad news continued following the release of weaker than expected PMI manufacturing data, forecast at 49.1 the actual figure was 48.2, this caused the pound to drop to 1.1798 against the euro and 1.3172 against the US dollar.
On Wednesday, services PMI data for July came in as expected at 47.4 however this was a sharp drop from 52.3 posted in June. This data shows the UK service sector is feeling the impact of “Brexit” and confirms the UK economy is slowing at its fastest rate since the financial crisis of 2008.
All eyes were on the UK on Thursday as the Bank of England announced their decision on interest rates, as expected the BOE decided to cut interest rates to 0.25%, as well as the rate cut the MPC also increased its QE programme to £435bn, buying £60bn of UK government bonds and £10bn of corporate bonds. This stimulus package should, in theory stimulate the UK economy and ward off a recession.
The BOE has also slashed it's growth forecast for 2017 from 2.3% to 0.8%, this is the biggest cut to its growth forecast since it started making them in 1992, this caused a further sell off for the pound as it dropped 2 cents against the euro and US dollar.
EURO
Good news for Europe as Eurozone composite PMI increased from 53.1 in June to 53.2 in July, services PMI also increased from 52.8 in June to 52.9 in July. These figures have been lifted by a very strong individual performance from Germany which has outweighed the poor performance of Italy and Spain.
Irish exports are starting to feel the effects of “Brexit”. The sharp decline of the pound against the euro means that Irish exports are currently 15% less competitive said Fergal O’Brien the director of the Irish Business and Employers confederation.
Britain is Irelands biggest export partner with €1.5bn in transactions each week. The worrying trend in historic trade data shows that a 1% decline in the pound’s value results in 0.7% drop in the value of Irish exports.
US DOLLAR
Monday we heard from the New York Fed president William Dudley at a joint central-bank seminar in Bali, he suggested the US should exercise caution before it decides to raise interest rates, he went on to explain that it would be worse for the economy at this stage to hike rates too soon, rather than moving too late.
Friday We saw non-farm payrolls data show that the US economy has added 255,000 new jobs against the forecast of 180,000 in July. This means the US unemployment rate has held steady at 4.9%.
July saw the US manufacturing sector grow again for the fifth month running, overall the US economy has now delivered growth for the 86th consecutive month.
Elsewhere.
The Reserve Bank of Austrialia cut interest rates by 0.25 percentage points to a historic low of 1.5%. Glen Stevens the RBA’s governor said “an official cash rate of 1.5% could improve the prospects for “sustainable growth” in the economy”. However, economists said the RBA’s decision to cut rates is a sign global economic conditions are finally catching up with Australia.
The Japanese yen continued to gain strength since Prime Minister Shinzo Abe announced the latest stimulus package last week, this has forced the car manufacturer Toyota to launch an emergency cost cutting programme in a bid to improve their profits, they have also revised their net profit forecast this year from ¥1.5tn down to ¥1.45tn as “Brexit” shockwaves continue to be felt around the globe.
