The British pound has started the New Year with gains. In Tuesday’s North American trade, GBP/USD is trading at 1.3580, up 0.55% on the day. The pound is currently at its highest level since mid-September. On the release front, British Manufacturing PMI slowed to 56.3, shy of the forecast of 58.0 points. In the US, today’s sole event was Final Manufacturing PMI, which climbed to 55.1, edging above the estimate of 55.0 points. This marked the highest level since March 2015. On Wednesday, the UK releases Construction PMI. In the US, the FOMC will publish the minutes of its December meeting, and we’ll get a look at ISM Manufacturing PMI.
The new trading week kicked off in the UK with Manufacturing PMI. Although the index missed expectations, the reading pointed to expansion in the manufacturing sector, which has received a boost from strong global demand for British exports. As well, the weak pound has also made British products less expensive. The markets are expecting continued growth in the construction and services sectors later this week.
Traders can expect the Federal Reserve in the headlines a fair amount early in the New Year. Investors will be monitoring the Fed on Wednesday, with the release of the minutes of the December meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25% and 1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground. If the US economy continues to expand at a clip exceeding 3%, the Fed is expected to raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Although inflation remains well below the Fed target of 2.0%, outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes, despite low inflation.
