UK PMI Data Sends Sterling Tumbling on Tuesday

Activity in the UK construction sector fell for the first time in over a year, sending the sterling tumbling on Tuesday. EUR/GBP rose 0.46% to 0.8877 on the news. GBP/USD fell 0.20% to 1.3251. The construction purchasing managers’ index, according to Markit, fell below the 50-point threshold, which is an indicator of contraction.

The index fell to 48.1 for the first time since August 2016.

The decline is the country’s first since a brief decline following the EU referendum result last summer. The data is supplementary, with the Office for National Statistics (ONS) to release official data sometime in the future.

Economists forecasted a 51.1 reading. Construction output hasn’t declined this fast since July 2016, leading to concern among forex traders that the sterling may continue to fall. House build growth fell to a six-month low, while civil engineering work fell due to subdued risk appetite.

Extended lead times for budget approvals and remaining concerns over Brexit are factors in the sterling’s decline, too.

Reports from yesterday showed that UK factory growth also slowed in September, with investors fearing that the UK’s economy is slowing.

United States factory activity added further pressure against the sterling on Monday after reaching a 13-year high in September. The positive growth adds to expectations that the Federal Reserve will raise interest rates in December.

Tax cut proposals from U.S. President Donald Trump along with the prospect of higher interest rates have sent the dollar rising in recent weeks.

EUR/USD rose 0.25% in mid-morning trade to 1.1761. USD/JPY is down 0.03%. NZD/USD retreated 0.51% to 0.715. The Bank of Australia kept their benchmark interest rate at 1.50% following a monthly policy meeting on Tuesday.

Tensions following a pro-independence protest in Catalonia kept Spain in the spotlight on Tuesday. The euro remained supported by option expiries on Tuesday. Around $4 billion options are expiring on Tuesday between 1.175 and 1.18 levels, supporting the euro on Tuesday.

USD/CAD lost ground after an early-morning rally. The pairing is down 0.10% to 1.2496. The U.S. Dollar Index, a measure of the greenback’s strength against a basket of other currencies, fell 0.16% on Tuesday.

The Bank of Australia stated that slow wage growth will put pressure on economic growth. High household debt is also holding economic growth back, according to the central bank. The bank states that economic growth is expected to grow gradually in the coming years.

Australia’s Bureau of Statistics reported lower-than-expected building approvals. The bank reported 0.4% growth in building approvals, missing expectations of 1.1% growth.

Melissa Thompson
Melissa Thompson writes about a wide range of topics, revealing interesting things we didn't know before. She is a freelance USA Today producer, and a Technorati contributor.