The US market was shut for the Labor Day public holiday yesterday, but another shot of better than expected data from the UK economy put the wind in sterling’s sails. The services sector recorded its biggest monthly jump in 20 years, defying expectations of a further leg lower for a currency now trading at a seven-week high.
Sterling climbed 0.6 per cent to $1.3375 following the release of the purchasing managers’ business activity index that showed a jump from July’s 47.4 to 52.9.
The pound posted its highest level since July 15, although it retreated by mid-morning to stand at $1.3330. Similarly, sterling popped against the euro, rising half a per cent to €1.1971, its highest in nearly five weeks, before easing back to €1.1926.
Coming on top of robust manufacturing and construction figures, the services data were evidence of the UK economy’s resilience.
However, though they are timely indicators of business activity levels, it is still very early days in interpreting the reaction of the economy to the ‘leave’ vote and long-term concerns persist.
Japan pulled a surprise at the G20 summit in China by publishing a memo warning its banks and other companies could leave Britain if the UK’s access to the European single market was impeded.
Bets on a further drop in sterling remain close to record levels, according to the latest data from the Commodity Futures Trading Commission.
It is still likely that UK firms’ access to the European market will be impeded and statements from the Japanese provide an insight into how firms are likely to react, foreign and domestic. As such, the negative impacts of Brexit are just as real as they ever were they just haven’t arrived yet.
EUR/USD had a small range overnight and is little changed at $1.1148 in early European trade. The pair opened in Asia at $1.1146 and gravitated back down towards 50-day MA ($1.1137) before a small spike to highs at $1.1158. From a technical view, out first support level is Wednesday’s low of $1.1123 ahead of the August 9 low of $1.1071. On the upside, yesterday’s high at $1.1182 and Friday’s high at $1.1252 are in focus.
GBP/USD also had a small range but is a little higher on the session amid some dip demand overnight after yesterday’s third successive much firmer than forecast UK PMI and more banks questioning the doom monger Brexit scenario. Cable opened in Asia around the $1.3300 handle and is now trading near the highs at $1.3327. Above here, yesterday’s high at $1.3376 and the July 15 high at $1.3481 are in focus. On the downside, we look for support at yesterday’s low at $1.3282 followed by Friday’s low at $1.3253.
USD/JPY gained in early Asian trade after a sideways US holiday session to add around 60 pips from yesterday’s European lows. However, the pair dropped back again following news reports of comments from Japan’s Hamada arguing that the BOJ hold off any action at the September meeting because any move would be overshadowed by the Fed a few hours later. USD/JPY dropped back under ¥103.40 but is now back around ¥103.65. From a technical view, today’s high may offer some resistance followed by yesterday’s high at ¥104.15. On the downside, today’s low at ¥103.36 and Friday’s low at ¥102.80 are in focus.
GBP/EUR opened in Asia at €1.1935 and has made modest gains after seeing subdued ranges early on. The pair briefly slipped to a €1.1928 low but has recovered to a session high of €1.1954 in recent trade. Above today’s high, we look for resistance at the August 4 high of €1.1984. On the downside, today’s low at €1.1928 yesterday’s low at €1.1896 and Friday’s low at €1.1841 are in focus.