Pound Sterling Recovers Slightly on Sanguine Service Sector PMI Result
The Pound recovered some of its recent losses yesterday as the dominant UK service sector was reported to have accelerated mildly last month.
Following an unexpected deceleration in manufacturing output and a shock drop in construction activity, the highly influential service sector inched higher from 53.2 to 53.6 in September. Given that the tertiary industries that take part in the service sector survey account for over 70% of British growth, the sanguine PMI result prompted a mild relief rally in Sterling.
Optimism, however, was curtailed by details in the report showing that new business growth tumbled to a 13-month low, which could lead to softer activity in future months. Markit Economics, who compiled the report, noted that UK GDP was likely to remain at 0.3% in the third quarter.
Pound to Euro Exchange Rate Drifts Higher but S&P BoE Theory Holds Sterling Back
The Pound to Euro exchange rate drifted higher yesterday as UK economic sentiment was mildly bolstered by a better-than-anticipated UK service sector print.
Additionally, GBP/EUR was boosted by news that Eurozone retail sales increased by just 1.2% in August, undershooting expectations of 2.6%. Sterling may have been able to register larger gains versus the single currency had it not been for ratings agency Standard & Poor’s decision to release a report throwing cold water on Bank of England rate hike hopes.
S&P believe that the BoE could raise rates in November, to bring interest rates back to the 0.50% pre-Brexit level, but argue further hikes may not be ‘justified’. The agency suggest that the recent shift towards more hawkish rhetoric from BoE officials is aimed at supporting the Pound but does not truly represent the bank’s policy intentions. This is a theory that many traders already held, but the release may have influenced traders in a broader sense.
Pound to US Dollar Exchange Rate Ticks Higher as Sturdy US Data Meets Dovish Fed Rumours
‘Cable’ ticked higher yesterday as sturdy service sector numbers calmed fears of an immediate, sharp slowdown in UK economic output. However, Sterling’s gains were limited and a rampant US services report suggested that the Federal Reserve is likely to press ahead and raise rates again later this year.
The ISM non-manufacturing survey, which measures tertiary output in the US economy, jumped from 55.3 to 59.8, smashing market forecasts of 55.5. The highly optimistic figure featured robust results in almost every sub-index and was the highest score for over 12 years. Investors concluded that with US economic indicators remaining fairly sturdy, the Fed will likely pull through on its suggestions that interest rates will rise one more time in 2017.
But, in another twist, sentiment towards the US Dollar cooled slightly later in the day due to rumours that US President Donald Trump is planning to put forward a less hawkish candidate for Fed Presidency than previously envisaged. Rumours suggest Trump is now looking to put Jerome Powell in the post, who is seen to hold a more dovish outlook than the previous frontrunner to replace Janet Yellen, Kevin Warsh.
Pound to Canadian Dollar Exchange Rate Posts Slender Rally but Oil Prices Support ‘Loonie’
UK data contributed to a slender rally in favour of the Pound against the Canadian Dollar yesterday, with GBP/CAD supported by a much-needed sanguine UK service sector report, which followed two underwhelming PMI prints (manufacturing and construction).
Sterling’s gains started to evaporate later in the day, however, when US inventory data showed that oil stockpiles fell by -6 million barrels last week. The data pointed to higher consumption and increased oil demand, and therefore bolstered the appeal of the commodity-correlated ‘Loonie’. CAD also garnered support from a rise in risk sentiment related to speculation surrounding the next head of the Federal Reserve.
Pound to Australian Dollar Exchange Rate Fails to Hold Gains as Dovish Fed Speculation Boosts Risk Markets
The Pound to Australian Dollar exchange rate initially bounced in response to the strong UK service sector report but demand for the risk-sensitive ‘Aussie’ increased during the evening as investors digested news that the Federal Reserve could have a more dovish-than-expected President in the future. The rumours of a less hawkish Fed President weakened the US Dollar and bolstered the appeal of risk currencies such as CAD, AUD and NZD.
Pound to New Zealand Dollar Exchange Rate Rises as Dairy Prices Fall at Auction
A rise in global risk appetite, due to speculation linking the Fed with a President less likely to pursue a swift monetary tightening approach, meant that Sterling was unable to post any lasting gains versus the New Zealand Dollar yesterday. Overall, GBP/NZD fluctuated but remained close to its starting levels.
Data Released Today
12:30 EUR ECB account of the monetary policy Meeting
15:00 USD Durable Goods Orders (AUG F)