Sterling
Sterling surged higher across the board yesterday morning in response to a higher-than-anticipated service sector headline reading.
Following underwhelming manufacturing and construction PMIs, UK traders breathed a sigh of relief and bought back into the Pound when March’s tertiary industries report came in at 55.0, beating forecasts of 53.5. The unexpectedly strong headline score was enough to boost demand for Sterling, however, analysts noted that rising costs were starting to impact consumer-focussed companies. While financial services remained resilient, consumer-oriented sectors such as hotels, restaurants and gyms suffered.
Bank of England policymaker Gertjan Vlieghe warned that the consumer slowdown could intensify over the coming weeks and months but his dovish words were barely picked up on by currency traders.
Euro
The Pound to Euro exchange rate strengthened by around half a cent yesterday as markets focussed on the sturdy UK service sector score line.
Some analysts commented that a degree of ‘Brexit fatigue’ had crept into trading rooms, with some traders believing that the Pound’s 14-cent depreciation against the single currency since the referendum was enough to insulate traders from the risk of a negative outcome from Brexit. Those tired of the EU exit headlines questioned whether the Pound would continue to fluctuate on every development in the ongoing Brexit saga. It would be nice if Sterling trading started to hone back in on economic fundamentals and interest rate expectations, but realistically the biggest factor in determining UK economic fundamentals and interest rate expectations is likely to be the ability of the British government to agree a positive deal with the EU.
Having said that, the performance of GBP/EUR today is likely to be influenced by a slew of policy announcements from European Central Bank policymakers. Hints at an end to QE or higher rates could bolster the Euro, while talk of retaining accommodative measures could weigh.
US Dollar
Although Sterling remained capped by longstanding resistance against the US Dollar yesterday, ‘Cable’ put in a decent performance, increasing in value by around half a cent.
The surprisingly high UK service sector print, which accounts for over 70% of British GDP output, was the most important driver of sentiment in GBP/USD yesterday. US data was a mixed bag, with the ISM services report slowing unexpectedly from 57.6 to 55.2 and the ADP employment change gauge smashing expectations of 185,000 with a score of 263,000. During the evening the Federal Reserve delivered a largely neutral minutes report, in which expectations of a further two rate hikes in 2017 were maintained.
Canadian Dollar
The Pound flourished against the Canadian Dollar yesterday, rallying by over a cent, as markets reacted to sturdy UK services data and rising oil supplies.
The latest US crude stockpile report showed that inventories rose by 1.6 million barrels last week, which massively overshot expectations of 535 million. Oil prices dropped on the news of oversupply and this reduced the appeal of the commodity-sensitive ‘Loonie’.
Australian Dollar
The Sterling to Australian Dollar exchange rate rallied by around half a cent yesterday. The Pound was boosted by a strong headline reading in March’s UK service sector PMI, however, the details of the report did not bode so well for the British economy. Australian service sector output rebounded from 49.0 to 51.7 but it was not enough to lift the Antipodean currency.
New Zealand Dollar
The Pound appreciated by around 120 pips yesterday to hit its highest level against the New Zealand Dollar since midway through November. All of Sterling’s gains came after the better-than-expected UK services data.
Data Released
EUR ECB President Draghi speaks in Frankfurt High