Holding firm ahead of Non-Farms

Yesterday we saw PMI Services slip to 52.3 (Vs. 53.6 forecast) but Sterling ignored the decline and pushed higher. Gains were held against the EUR but the USD pulled back and Cable ended the day largely unchanged. Whilst the local election results are not complete, so far there hasn’t been a UKIP landslide that would shift opinion towards Brexit. However, sentiment towards Sterling remains bearish as the referendum casts a shadow that is darkened by weaker economic data. All this drives increased volatility for Sterling.

With no domestic data on the calendar today, Sterling is likely to range trade against most major pairs. Remaining open to downside risk, the US Non-Farm Payrolls could drive a reaction.

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The Euro eased against the Dollar yesterday while staying fairly flat against most other currency pairs. Continuing uncertainty over the EU recovery continues to weigh on sentiment. Data from the Services and Manufacturing sectors from France and Germany remained subdued, which concerns any analysts expecting the recovery to be driven by these member states. The ECB is likely to keep a bearish outlook for the Euro.

The dollar posted gains against JPY and EUR, driven largely by position taking ahead of today’s Non Farm Payroll data. The market is expecting a weaker number but the recent positive job numbers have not led to any rise in consumption and expenditure. As such, there is a greater down-side risk from a poor data set today because the US needs more than good employment data to push the economy forward. The market expectations have shifted and currently only a 10% chance of a June rate hike is being priced in and only a 50% chance of a rate hike at the end of the year. With this shift underpinning the current opinions, if the jobs data is very weak we could see a rather volatile afternoon.