British Pound (GBP) Suffers Fresh Blow as UK Services PMI Misses Expectations
- Written by: Gary Howes
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The British Pound Sterling (GBP) faced up to the release of the March PMI service sector data on Thursday. The disappointment saw the UK currency suffer fresh weakness, however losses were ultimately contained.
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Thursday, What happened?
"Sterling slipped toward lows of the session against the greenback after data overnight showed a weaker than expected reading of activity in the U.K.’s dominant services sector last month. March’s PMI for services inched lower to 57.6 from February’s 58.2, below market expectations for a reading of 58.1. While still above the key 50 level that separates expansion from contraction, the report did undermine some of the pound’s appeal. Overnight, BOE Governor Mark Carney said lending rates could rise before the next general election in the U.K, which is scheduled for sometime in Q2 2015. Expectations for a rise in U.K. borrowing costs in early 2015 should continue to support the pound." - Omer Esiner at Commonwealth Foreign Exchange.
15:11: Pound / dollar - a bullish bias remains favoured
This in from the team at Swissquote:
"GBP/USD is moving sideways after its recent rise. However, the short-term momentum remains positive as long as the hourly support at 1.6598 (28/03/2014 low) holds. Hourly resistances can be found at 1.6684 and 1.6718. Another hourly support stands at 1.6555 (27/03/2014 low).
"In the longer term, prices continue to move in a rising channel. As a result, a bullish bias remains favoured as long as the support at 1.6460 holds. Another key support stands at 1.6220 (17/12/2013 low)."
14:55: Draghi the master wordsmith
This assessment by Ishaq Siddiqi at ETX Capital:
"Super Mario again proves he is a master wordsmith by shaking up financial markets with rhetoric about talk at the ECB over the possibilities of employing unconventional easing measures including QE. European stocks markets pare session losses to trade higher following the presser while the euro currency is under pressure on the back of Draghi’s comments.
"It was expected that Draghi would hint at what’s inside the ECB’s war-chest but as expected, Draghi is relying on his words as a form of action. Draghi says rates were kept on hold on the basis of the ongoing recovery taking place in the euro zone which is valid given the series of data we have had out of the region which certainly suggests a tepid recovery is in play.
"He kept it all very dovish though, saying the ECB will act at any time with all measures considered but only if inflation expectations change and the EUR gains more strength – not so much a direct message to battle deflation. For that, Draghi said he’s not impressed by the deflationary threat that’s sweeping through the euro zone but reckons that inflation hasn’t declined enough to warrant unconventional action, essentially suggesting that ECB will exhausted conventional measures like rate cuts first before they consider the big guns."
14:51: £ unchanged vs the €
So the pound euro exchange rate is back to where it started. It turns out the ECB press conference leant itself to the bearish side on rate. However, as we commented earlier, there was no major blow delivered to the EUR so we would imagine it's back to business as normal soon.
13:48: Oops, now EUR on the back-foot
Draghi says quantitative easing (QE) is included in the mandate and was discussed in the meeting. EUR sinks. But this is by no means a knock-out blow. One gets the feeling that unless some aggressive talk comes soon the EUR bulls will consider this a victory.
13:44: Euro on the front-foot as ECB press conference is underway
ECB President Draghi is addressing the media now.
The EUR was bid up on comments that the Bank foresees inflation picking up in April. The ultimate message being that there is little reason to introduce more aggressive monetary policy. A pro to the EUR.
13:25: GBP-CAD feeling the heat
We are seeing particular pressure being felt agianst the Canadian dollar today. "GBPCAD is pressuring the base of the sideways trading range in place since late February. Market chatter earlier focused on stop loss orders rumoured to have accumulated at or just below 1.8275 but so far, the sell off has not accelerated," says Shaun Osborne at TD Securities.
13:20: No change at the ECB
No surprises here then. The big test comes in the next half hour - will Draghi try to talk rates and the currency lower in the post-decision press conference?
11:52: £ exchange rate complex under pressure
As we approach mid-day we see the entire complex is under pressure with today's PMI miss giving an excuse for traders to reduce exposure to the UK pound.
Note that the GBP-EUR is under pressure despite the upcoming event risks to the EUR posed by the ECB. Driving EUR demand are Eurozone monthly retail sales for February which read at +0.4%, analysts had expected the figure to read at -0.6%.
11:37: Good demand seen for GBP-USD @ 1.66
Sean Lee at ForexTell gives us some insights into where demand for Cable currently resides:
- Dealers reported large stops resting beneath the 1.6620 level in GBP/USD yesterday and they have survived the Asian session as support held
- However, they are likely to attract price in the London session; rising US yields continue to underpin USD strength
- Cable has been stuck in a frustratingly tight range this week
- Unlikely to change pre-NFP, so the 1.66-1.6680 range should hold
- UK corporate bids seen at 1.66, good demand from mixed names at 1.6570
- To the topside, heavy supply at 1.6675-85 from Middle East sovereign wealth funds
11:20: Bank of England data confirms bullish UK economy
The past 2 months have seen mixed results for the UK pound with signs that the pace of recovery is easing back. However, the economy is still outperforming the Eurozone and many other economies. On such an observation we would be inclined to suggest the outlook for the UK remains to the upside.
Today the Bank of England reported on their latest credit conditions.
Matthew Fell, CBI Director for Competitive Markets, said:
“Confidence is beginning to translate into increased demand for growth finance across firms of all sizes. It’s particularly encouraging to see another uptick in long-term capital investment activity, which will help contribute to a sustainable recovery.
“But the improving conditions for larger businesses now need to filter through more widely. Banks have a crucial role to play in the economic recovery and must step up to the plate and support lending to smaller firms too.
“This data also highlights a measured rise in demand for consumer credit as households begin to look forward to a recovery in real incomes later this year.”
10:23: Is the immediate downside bias on EUR-GBP still intact?
Karen Jones at Commerzbank says:
"EUR/GBP’s rally has terminated as expected circa .8305/15 (Elliott wave count on the 240 minute chart), this leaves the immediate downside bias intact. We should therefore see a retest of the 61.8% retracement at .8250. Below .8245/40 will target .8210 en route to major support at .8160/59.
"Current Position: Short .8279. Recommended trade: Add to shorts .8315, stops .8340."
10:05: Data miss is nothing to worry about
Ishaq Siddiqi at ETX Capital joins those who hold the viewpoint that the easing back in the services sector is nothing to worry about:
"UK PMI services data just out and shows a bit of easing but nothing to worry us too much as the indicator still firmly points to strong growth and the reading is balancing after strong surge in activity."
09:30: Services PMI miss the mark
And this is why markets were selling the GBP; UK Services PMI disappoint by coming in at 57.6. Estimates were for 58.2, so this is quite a big miss.
We are seeing selling pressure right across the board.
09:29: Sterling under fresh pressure ahead of PMI
Noticing the GBP being sold quite hard ahead of the PMI release.
09:04: Eurozone data misses the mark, but GBP-EUR rises
German Markit Services PMI (Mar): Comes in at 53, missing 54 expected. Down from 55.9 a month previously.
Eurozone composite Markit Services PMI (Mar) comes in at 52.2, missing 52.4, down from a previous 52.6.
And the Eurozone Markit PMI Composite (Mar) misses the mark coming in at 53.1, 53.2 had been expected. Previous was 53.3.
So a round of misses, but GBP-EUR has actually retreated a little. The big event remains the UK data due at the bottom of the hour.
08:40: GBP/EUR - Draghi to use press conference to hurt EUR
Jeremy Cook at WorldFirst on today's big event for the pound to euro exchange rate:
"It is our opinion that the ECB will once again stay the course and keep policy stable today with no cuts to the main refinancing rate or a push into negative territory on the deposit rate.
"To be honest, we must not see a slight rate cut as a panacea for all the Eurozone’s ills. Longer-term, aggressive and unconventional measures are needed but we fear that these will remain theoretically ethereal for the European Central Bank at the moment.
"We do think that Draghi cannot be seen to be ambivalent to the moves in price markets and will use his post-decision press conference to once again lay out that ALL measures (emphasis ours) are open to the Bank at this point in time."
08:30: Sterling up vs Aus dollar
The GBP-AUD is enjoying a relief rally, up some 0.4% having attained 1.8059.
This comes despite the Australian trade balance significantly beating expectations when it was released last night with the figure coming in at $1.2billion – the 2nd month in a row that the balance has been above £1bn.
However, Australian retail sales were also released alongside the trade balance, coming in slightly lower than expected at 0.2%
08:20: Eurozone PMI data due at 09:00
The pound to euro exchange rate faces up to the composite Eurozone PMI data at 09:00. Analysts are looking for a reading of 53.2.
The Eurozone Services PMI composite is also due at this time and expectations are for 52.4.
Germany release their Services PMI at 08:55. Look for a miss on the 54 expected.
However, the UK Services PMI will arguably be more important for currency traders owing to the importance of the sector to the UK economy.
