Market Report - 23/08/2023
PMI readings paint a gloomy picture across the UK and Europe
It has been a volatile morning session in the FX markets, with a host of economic data released before 10am this morning, across the Eurozone and the UK.
Starting in Europe, the German services sector unexpectedly shrank, with the purchasing managers index (PMI) showing a reading of 47.3 in August. A reading below 50 indicates contraction. Compared to the July reading when the German services sector expanded, with a reading of 52.3 – Analysts has been expecting a reading of 51.5.
The German manufacturing sector continued to contract in August, but at a slower pace, with PMI readings coming in at 39.1 for August, slightly higher than the July reading of 38.8. However, the number is better than the forecasted 38.7 prediction from analysts.
Reuters is reporting that this is the steepest decline in business activity for more than three years since May 2020.
In France, the manufacturing sector reading was less negative than predicted, with flash readings for August coming in at 46.4. While it indicates a contraction, it is better than the 45.1 reading in July and analyst forecasts for 45. The French services sector contracted further, decreasing to 46.7 in August from 47.1 in July of 2023. Analysts had been expecting a milder contraction of 47.5.
Also this morning, the Eurozone PMI readings have shown that private sector activity slid to its lowest level since November 2020, with the composite PMI falling to 47.0 in August from the July reading of 48.6. Again, lower than the 50-mark, and lower than analyst forecasts for a reading of 48.5. Breaking the figures down further, the services sector shrank below the 50-mark for the first time this year, as consumers reined in spending. Services sector PMI for the region came in at 48.3, compared to 50.9 in July, and lower than predictions for a reading of 50.5.
Meanwhile, activity across the manufacturing sector, which has been on the decline since mid-2022, gave some signs of hope, with a reading of 43.7. That is higher than 42.7 in July, and is the first improvement in seven months. Analysts had been expecting a further drop to 42.6.
Following the release of Eurozone’s PMI, it was the UK’s turn to share the gloom; UK composite PMI unexpectedly fell to 47.9 for the month of August, down from July’s 50.8. The reading came as a surprise for analysts who expected business activity to continue to expand, having predicted a reading of 50.3. The UK service sector and stumbled, falling from 51.5 to 48.7 in August, again like the Eurozone, below the all important 50 marking a contraction.
Manufacturing activity in the UK also dropped to 42.5 in August, compared to 45.3 in July, a sharper contraction that predicted by analysts.
Our Corporate Dealer, Danny Chesham added the following market analysis:
“Following these releases, we saw drastic volatility for most GBP and EUR pairs. GBP/EUR noted highs of 1.1774 after the Eurozone and German CPI data, before retreating relatively substantially back to 1.1704 at time of writing. Despite noting monthly highs, the pair now awaits the EU Consumer Confidence data for fresh impetus.
GBP/USD has lost ground following the contraction in UK Manufacturing and Servies sectors, losing 0.56% from open to trade tepidly around 1.2650 at time of writing. Daily highs of 1.2765 were noted earlier, with further volatility likely, as market conditions at present seem to be attractive for high beta currencies such as the GBP.
EUR/USD has also been negatively affected by the euro sell-off this morning. The pair is treading water just above the 1.08 mark, with a daily range of 1.0810-1.0871 noted thus far. US PMI data and EU Consumer Confidence will be eagerly awaited to establish new levels for EUR/USD.”
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