Sterling
There was good news for the UK economy on Friday, with an index showing that British service sector activity expanded faster-than-anticipated during May. However, the Pound was unable to rally on the news due to a shock shift in global risk sentiment.
The services PMI report printed at 53.5, beating expectations of 52.5 and marking a decent rebound on April’s three-year low of 52.3. One-third of firms reported that they were suffering from the uncertainty of the upcoming EU referendum, which suggests that economic output could potentially speed up if Britons vote to remain in the European Union. As things stand: the economy looks likely to have decelerated from 0.4% growth to 0.2% in the second quarter.
Euro
The Pound to Euro exchange rate tumbled by over a cent on Friday as cross-border flows benefitted the single currency following a shock labour market print in the United States.
The Euro appreciated by over 200 pips versus the US Dollar in reaction to the lowly US jobs numbers, which subsequently propelled the single currency higher versus Sterling.
In terms of European data, it was reported that Eurozone retail sales slowed from 1.8% to 1.4% in April, missing analysts’ forecasts of 2.1%. However, the underwhelming print had little impact on the currency market come the end of the day.
US Dollar
‘Cable’ jumped by over a cent on Friday as markets reacted to a dismal US non-farm payroll report.
Massively undershooting expectations of 160,000, the headline NFP print came in at just 38,000 – the lowest score since September 2010. The near-six-year low means that Federal Reserve policymakers are even less likely to stoke the fire of uncertainty with a rate hike in June. Coming into the afternoon all the talk was of wage growth, which actually printed sturdily at 2.5%, but the extreme nature of the headline NFP miss meant that the earnings figures were relegated to the sidelines.
Fed officials have ramped up the hawkish rhetoric in recent weeks, insisting that financial markets have been underplaying the strength of the US economy; May’s job report suggests that markets were on the ball and that it was the Fed who was misjudging the health of the domestic economy. It will be very interesting to see how Fed Chairwoman Janet Yellen responds to this setback during her scheduled speech this evening. If the central bank chief reverts to dovish mode then we could see the ‘Greenback’ slide further down the ladder.
Canadian Dollar
Sterling plunged by around half a cent against the Canadian Dollar on Friday as investor appetite for risk increased following the torrid US NFP report. Most traders saw the weak US jobs numbers as a sign that borrowing costs will rise slower than initially expected – which was seen as a positive for risk-correlated currencies, despite the clear negative implications of the report on the global economy as a whole.
Australian Dollar
The NFP-linked rise in global risk sentiment also lifted the Australian Dollar higher against Sterling on Friday. GBP/AUD tumbled by around two cents to a new fortnightly low as traders pushed back their estimations for when the Federal Reserve will next raise interest rates.
A separate report showing that Australian service sector performance increased from 49.7 to 51.5 in May also bolstered the appeal of the ‘Aussie’.
New Zealand Dollar
The Pound struck its lowest level in a month against the New Zealand Dollar on Friday as upbeat risk trends drove the ‘Kiwi’ higher by around three cents. Earlier in the day an index of Chinese services activity had printed at 51.2, down from 51.8 previously, but the underwhelming score was no match for the market-moving US NFP report.
Data Released
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