Currency News Weekly Roundup: Pound Losses Limited as UK Service Sector Grows

GBP/EUR – Resilient UK Service Sector Supports Pound

A surprise improvement in February’s UK services PMI helped to limit the weakness of the Pound, averting fears of a fresh slowdown in the service sector.

As the PMI picked up from 50.1 to 51.3 this encouraged investors to take a more optimistic view of the economic outlook, in spite of the weakness of the corresponding manufacturing and construction PMIs.

Even so, GBP exchange rates remain vulnerable to downside pressure in the days ahead as long as Brexit-based uncertainty persists.

Any decline in the Halifax house price index could also dent the appeal of the Pound this week, with confidence in the outlook of the housing market already limited.

GBP/USD – Pound Benefits as BoE Signals Higher Interest Rate Path

Comments from Bank of England (BoE) Governor Mark Carney offered a boost to GBP exchange rates as he noted that investors are under-pricing the course of monetary tightening.

This more hawkish policy outlook encouraged the Pound to trend higher across the board, even though any interest rate movement remains dependent on Brexit developments.

GBP exchange rates struggled to hold onto this positive momentum for long, however, as progress towards a Brexit agreement remained lacking.

With just weeks left before the Brexit deadline investors remain wary of the prospect of further economic disruption and an extended period of uncertainty.

USD/GBP – Trade Tensions Fail to Weigh on US Economy

As the latest personal consumption expenditure core reading held steady this encouraged confidence in the US Dollar, given that the measure remains the Federal Reserve’s preferred gauge of inflation.

February’s ISM non-manufacturing composite index surprised to the upside, surging from 56.7 to 59.7 as the service sector shrugged off the disruption of the recent government shutdown.

With the US economy showing signs of resilience, in spite of ongoing trade tensions, the mood towards the US Dollar naturally improved.

Friday’s non-farm payrolls report could offer an additional boost to USD exchange rates, with forecasts pointing towards a drop in the unemployment rate.

As long as the labour market shows fresh signs of tightening the US Dollar looks set to remain on a bullish trend.

EUR/USD – Rising German Inflation Supports Euro

As the German consumer price index bettered forecasts in February, accelerating from 1.4% to 1.6% on the year, this offered the Euro a boost.

Although this still fell short of the European Central Bank’s (ECB) 2% inflation target the improvement was enough to shore up EUR exchange rates last week.

However, as the finalised fourth quarter Italian gross domestic product reading showed a stagnation this soon put the single currency under renewed pressure.

EUR exchange rates could lose further ground on Thursday if the ECB’s latest policy meeting sees a shift towards greater dovishness among policymakers.

If the odds of the central bank returning to a monetary loosening bias increase the Euro could see a sharp decline across the board.

Louisa Heath

Contact Louisa Heath