Following on from last week’s dismal manufacturing and GDP prints, British economic sentiment took another knock yesterday morning when the latest UK construction PMI printed close to its lowest level for two years. Output dropped from 57.8 to 54.2, missing forecasts of 57.4, as clients held back on investment ahead of this week’s general election. It seems that the prospect of a hung parliament, and the economic uncertainty it would cause, has led to a slowdown in new construction projects; hopefully we will see a rebound in the sector once a new government has been formed.

If this morning’s service sector PMI follows the trend and comes in weakly then we could see a more violent reduction in demand for the Pound. A strong score, however, could allow Sterling to stabilise.

Euro

The single currency struggled to take advantage of the slowdown in British construction output yesterday, for although the European Commission raised its 2015 growth forecast for the Eurozone from 1.3% to 1.5%, market sentiment was shot by the EC’s negative revision to its Greek GDP projection, from 2.5% all the way down to a dismal 0.5%. The report piled more pressure on Athens’ Syriza government to agree a deal with its lenders to obtain additional fiscal support. Matters were made worse by reports in the financial press that the International Monetary Fund may withhold funding to Greece unless its European leaders agree to write-off a large portion of debt – something that, at this stage, does not look like happening.

The Pound to Euro exchange rate now appears to be poised between Greek exit fears and UK election jitters. Today’s service sector report could influence the pair, but GBP/EUR will remain more sensitive to any significant shifts in sentiment either in Athens or in London.

US Dollar

Sterling registered a half-cent gain versus the ‘Greenback’ yesterday afternoon as traders reacted to a terrible US trade balance report. The US Commerce Department reported that the national deficit widened from -$35.9 billion to an almost unfathomable -$51.4 billion in February. The damning report contained the worst monthly trade figure since the collapse of Lehman Brothers way back in 2008.

The US Dollar suffered a dip in demand following the print because analysts estimated that it could lead to first quarter growth being revised from an already derisory +0.2% all the way down to -0.5%, which could impact the Federal Reserve’s rate hiking plans.

Canadian Dollar

The Canadian Dollar retained a stronger rate against the Pound yesterday as demand for the ‘Loonie’ was buoyed by a spike in oil prices above $60 a barrel and demand for the UK tender was softened due to another underwhelming private sector PMI result. The ‘Loonie’ also derived support from the terrible US trade balance print, which sent some traders wiring their funds north of the border.

Australian Dollar

The Reserve Bank of Australia wrong-footed some traders yesterday morning by cutting interest rates by -25 basis points to 2.00%. However, it was not the bank’s decision to slash rates that most confused market players, it was the lack of guidance in the accompanying statement. The RBA removed talk of ‘further easing’, which many saw as a sign that rates would not move lower in the future, and this actually allowed the ‘Aussie’ to rally on the back of the decision. However, investors cautioned that if future policy statements contain talk of further reductions to the benchmark rate the Australian Dollar could be subjected to enhanced volatility.

New Zealand Dollar

Poor domestic data prevented the Pound from rebounding against the New Zealand Dollar yesterday. GBP/NZD lost out on around 200 pips at the end of last week’s session due to dud UK manufacturing numbers and yesterday’s soft construction report only ensured that Sterling would remain at a lower level against the ‘Kiwi’.