Pound Sterling Demand Remains Soft as UK Services PMI Hits 4-Month Low
Demand for the Pound remained soft yesterday as a minor downtick in the UK service sector PMI completed a hat-trick of underwhelming private sector figures in June.
The hugely influential services report, which accounts for over 70% of British GDP, fell from 53.8 to a four-month low of 53.4 with business optimism sinking to its lowest level since last June’s EU referendum. Although the result means that manufacturing, construction and services all decelerated last month, each sector achieved a score above the 50.0 mark that separates growth from contraction.
Analysts blamed the slowdown on additional political uncertainty caused by Theresa May’s failed snap election and the ensuing hung parliament, which fell in the same month as the start of Britain’s official negotiations with the EU.
GBP/EUR Flat as Investors Sceptical of ECB Tightening Prospects
Following dovish comments from European Central Bank chief economist Peter Praet on Tuesday, the Euro failed to build any momentum against Sterling yesterday, even though UK data came in slightly lower-than-anticipated.
The four-month low UK services PMI printed at 53.4, subtly missing economists’ forecasts of 53.5. However, traders were largely prepared for a score of this nature and therefore Sterling was not subject to any intense selling pressure against the recently jawboned Euro.
Data out of the currency bloc actually came in sturdily, with Eurozone retail sales outperforming expectations of 2.3% with a score of 2.6%. The report runs inline with recent robust prints from the continent, however, demand for the single currency is being held back by the view that the ECB is not prepared to start winding down stimulus anytime soon.
GBP/USD Higher Following Dovish Remarks in Federal Reserve Minutes Report
‘Cable’ edged slightly higher yesterday evening following the Federal Reserve’s latest minutes report.
The minutes revealed that some policymakers were growing increasingly concerned that softer domestic data prints and subdued inflation growth ‘might prove inconsistent’ with the US central bank’s plans to continue hiking interest rates.
Other Fed officials were happy to look through the recent onset of mildly unsettling ecostats and were keen to press ahead with the planned tightening of policy.
Although the minutes were hardly the most dovish in the world, the fact that divisions were seen to be growing at the Fed weighed on the US Dollar.
Indeed, markets are much less hawkish on interest rates than the US central bank: the Fed expects to hike rates once more in 2017, whereas speculators give it just a 50.6% chance that interest rates will be raised 25 basis points by the end of the year.
GBP/CAD Rebounds From 2.5-Month Low as Oil Drags on Demand for the Dollar
Profit-taking helped lift the Pound to Canadian Dollar exchange rate from a two-and-a-half-month low yesterday.
The ‘Loonie’ had surged on Tuesday when Bank of Canada Governor Stephen Poloz intimated that interest rates were likely to rise imminently, but the commodity-correlated currency drifted lower yesterday as oil prices tumbled. The reason for the oil slide was comments from Russia suggesting that the major oil producer would not be interested in pursuing deeper production cuts in an attempt to push prices higher.
GBP/AUD Flat But UK Productivity Dips Below Pre-Crisis Peak
Despite trading in a choppy fashion yesterday, the Pound to Australian Dollar exchange rate managed to avoid sustaining any lasting losses following the morning’s four-month low UK service sector PMI.
Sterling was also able to shrug off news that UK productivity shrunk 0.5% in the first quarter. The slide brought productivity levels back below the pre-crisis peak, but currency traders did not punish the pound on this occasion.
GBP/NZD Loses 50 Pips Ahead of Service Sector PMI
The third in a trio of underwhelming UK private sector reports was not enough to send Sterling tumbling against the New Zealand Dollar yesterday as traders were well prepared for the slight downtick.
Some investors also believe that June’s disappointing numbers could have been accentuated by the uncertainty surrounding the UK snap election. This means there is scope for the Pound to slide further if July’s PMIs fail to impress.
Data Released
EUR ECB Account of the Monetary Policy Meeting
USD ISM Services/Non-Manufacturing Composite (JUN)