The British pound is almost unchanged in the Monday session. In North American trade, GBP/USD is trading at 1.2956, up 0.01% on the day. On the release front, British Construction PMI slowed to 51.1, short of the estimate of 52.1 points. This marked the weakest reading since September 2016. US banks are closed for the Labor Day holiday, so traders can expect a quiet North American session. On Tuesday, the UK releases Services PMI, which is expected to dip to 53.5 points.
It was a disappointing end to the week, as US employment numbers were unexpectedly soft on Friday. but the dollar shrugged off the disappointing numbers and held its own against the pound. Nonfarm employment change slowed to 156 thousand, well below the estimate of 180 thousand. This marked a 3-month low. However, with the US labor market still close to capacity (the unemployment rate is just 4.4%), the markets can be forgiving about a softer nonfarm payroll report. Wage growth, or the lack of it, is a more pressing concern. Average Hourly Earnings posted a small gain of 0.1%, missing the estimate of 0.2%. This was down from 0.3% in the previous report, and matched the weakest gain seen in 2017. The lack of wage gains has impacted on inflation levels, which remain well below the Fed’s inflation target of 2%. Soft inflation has dampened enthusiasm for a final rate hike in 2017, with the odds of December increase pegged at just 37%.
The Brexit negotiations continue to grind slowly, causing concern in both Brussels and London. A third round of talks ended last week in Brussels, as the head of the EU team, Michel Barnier, complained about the pace of progress. Britain and the EU remain far apart on a range of issues and even the scope of the talks remain in dispute. Britain wants to discuss a future trading relationship with the EU at the same time that points in contention are dealt with, but the Europeans insist on solving the contentious issues first, such as the size of Britain’s bill and the jurisdiction of the European High Court on European citizens living in the UK. With plenty of distrust between the sides, the negotiations could grind to a halt if both sides don’t show greater flexibility, and such a scenario would likely take a toll on the British pound.
