Pound Sterling Forecast: GBP/EUR, GBP/USD Exchange Rates Predicted to Bounce Back after Services PMI?

Pound Sterling Cools Ahead of Service Sector PMI

After a strong start to the year, demand for Pound Sterling (GBP) exchange rates cooled off slightly yesterday. The British currency found itself softening versus most of the majors as UK construction came in lower-than-anticipated.

It seems that, following Tuesday’s undershooting manufacturing report and ahead of this morning’s service sector score, markets are bracing for a full sweep of underperforming PMI results.

While the Pound managed to shrug off the manufacturing index coming in at 56.3 compared to calls for 57.9, and the construction index printing below forecasts of 53.0 at 52.2, it appears that the softer-than-anticipated results have weakened the outlook for the highly-influential services PMI.

The median market consensus suggests that output rose from 53.8 in November to 54.0 in December. Anything above this level could breathe life into Sterling, while anything lower than November’s score could prompt another round of GBP selling.

Pound to Euro Exchange Rate Dips Following Slowdown in PMIs

The Pound to Euro (GBP/EUR) exchange rate dipped slightly yesterday as traders slowly rowed back on expectations of a sturdy UK service sector PMI score.

The UK’s tertiary industries make up for over 70% of British GDP, meaning the services PMI is one of the most highly-tracked UK economic indicators.

A significant slowdown in services activity is therefore liable to weigh on Sterling. However, a surprise to the upside could see the GBP/EUR exchange rate push towards two-week highs.

Pound to US Dollar Exchange Rate Drops from 3-Month High

The Pound to US Dollar (GBP/USD) exchange rate struck a new three-month high yesterday morning, however, GBP went on to depreciate by around -70 pips on the day.

While the week’s UK private sector reports have undershot, so far, yesterday saw a glittering US ISM manufacturing print.

The headline factory sector report rose unexpectedly from 58.2 to 59.7, outpacing forecasts of a flatline in December.

The sturdy score confirms that the sector enjoyed its strongest year since 2004 in 2017, and could cause some investors to maintain a bullish outlook on the Dollar as we enter 2018.

The minutes from the latest Federal Reserve minutes report, released yesterday evening, showed that policymakers expected the recent US tax bill to boost US GDP growth from 2.1% to 2.5%.

Demand for the US Dollar did not increase following the publication, however, because the upgrade had already been factored into the price of the US Dollar and was evidently not deemed a strong enough factor to raise the US central bank’s 2018 rate hike projections.

Pound to Canadian Dollar Exchange Rate Weakens as Oil Hits 2.5-Year High

The Pound to Canadian Dollar (GBP/CAD) exchange rate softened by around half a cent yesterday as oil prices touched new two-and-a-half-year highs.

The commodity-correlated ‘Loonie’ often trades in tandem with its most-lucrative export, and the Canadian Dollar was certainly riding the crude train during yesterday’s session.

Pound to Australian Dollar Exchange Rate Depreciates -100 Pips

The Pound briefly touched its highest level for two-weeks versus the Australian Dollar (GBP/AUD) yesterday, however, the exchange rate plummeted -100 pips by the end of the London session.

Technical trading patterns suggest that the forecast could see Sterling struggle to reclaim the 17-month highs struck at the beginning of December, leaving the Pound at risk of flatlining or falling lower in the near-term.

Pound to New Zealand Dollar Exchange Rate Weakens Ahead of UK Services Report

With traders anxious ahead of this morning’s highly-awaited UK service sector report, Sterling was unable to build on early gains versus the New Zealand Dollar (GBP/NZD) yesterday.

GBP/NZD initially struck a fortnightly high, however, the ‘Kiwi’ Dollar went on to rally by around 120 pips.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard