FX round-up: Sterling knocked by slowing UK construction activity

Sterling was knocked lower on Tuesday on the back of a slowing in UK construction activity and suppressed thereafter by a blend of geopolitical unease gripping markets in Europe, the US and Asia.

At around about 17:06 GMT, sterling was down 0.46% to $1.2429, and off 0.39% to €1.656. The dollar-spot index was up 0.07% to $100.610.

Although sterling's now lingering Brexit-induced weakness served to buoy UK stocks once again, the country's construction purchasing-managers' index (PMI) added a shrill note of caution on its economic outlook.

The Markit/CIPS UK construction PMI fell to 52.2 for March, from 52.5 in February, a level at which economists expected it to remain.

Michael Hewson, chief market analyst at CMC Markets UK, noted the construction PMI was still "solidly in positive" territory.

"A reading of 52.2, on top of a weaker than expected manufacturing number yesterday, suggests that growth in Q1 could well undershoot expectations, especially if tomorrow’s services number also disappoints," said Hewson.

Chris Beauchamp, chief market analyst at IG, said all eyes were now on the UK services PMI figure tomorrow, which was also expected to point to a slowdown, albeit after strong growth.

A further cloud was cast over sterling's performance by lingering political risk in Europe, along with extant Brexit nerves and Trump uncertainties. Gold improved as investors got a taste for the safe-haven, nil-yielding precious metal.

FXTM research analyst Lukman Otunuga noted that gold was resilient despite the US dollar's resurgence. That, he said, continued to "highlight how risk aversion has become a key theme this week."

On other crosses, sterling was down against the loonie, yen and rand, with the greenback also falling against the South African currency, which appeared for the moment to be recouping a fraction of its recent losses.

The rand plummeted earlier this week after the country's president, Jacob Zuma, reshuffled his cabinet. Last night, S&P cut the nation's sovereign credit rating to 'junk'.

Sterling, meanwhile, rose on the kiwi and aussie, the latter's central bank leaving its rates unchanged at 1.75% and striking a mildly cautious tone.

"The Australian dollar has also come under pressure after a rather dovish interpretation of the latest Reserve Bank of Australia rate meeting," said Hewson.

Turning to the dollar, it was, in addition to a minor rise in the dollar-spot index, up on the euro, aussie, loonie and kiwi, but down on the yen.

The US on Tuesday confirmed its total deficit in trade on goods and services shrank by 9.7% month-on-month to reach $43.6bn, the Department of Commerce said.

Separately, the Institute for Supply Management's manufacturing sector gauge slipped from a reading of 57.7 for the month of February to 57.2 for March. A reading of 57.0 was expected.

"A weak US Manufacturing PMI print raised fresh concerns that the US Federal Reserve may not stick to its hawkish forecasts for three rate hikes over the course of 2017, seeing the non-yielding safe haven asset subsequently benefit," said Mike van Dulken and Henry Croft, both analysts at Accendo Markets.