Pound Boosted vs Dollar and Euro Today as Services PMI Beats Expectations
- Written by: Sam Coventry
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Pound exchange rates are higher as the all-important UK service sector PMI rises to 58.6 from 56.2 for November - another better than expected PMI for the UK.
The release follows the Manufacturing PMI, from Markit and CIPS, which read at 53.5 - better than the predicted 53. However, Tuesday's Construction PMI came in at 59.4, below expectations for a reading of 61.
The Services sector is by far the largest constituent of the UK economy and is therefore what traders were really looking out for. The boost to the UK currency has been impressive.
Pound, euro and dollar rate today:
- The pound to euro exchange rate (GBP/EUR) is today 0.45 pct higher than at Tuesday's close having reached 1.2687.
- The pound to dollar exchange rate (GBP/USD) is today 0.10 pct higher at 1.5652.
- The pound to Australian dollar rate (GBP/AUD) is today 0.50 pct higher at 1.8613.
- The pound to Canadian dollar exchange rate (GBP/CAD) is today 0.09 pct lower at 1.7825.
- The pound to NZ dollar rate (GBP/NZD) is today 0.57 pct higher at 2.0150.
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Services PMI Impresses
News that the service sector continues to expand at a healthy pace will maintain confidence that the UK's economy will continue to lead its peers in terms of growth.
Chris Williamson, Chief Economist at Markit, says:
“Faster growth of services activity brings welcome news that fears of a potentially sharp slowdown in the economy look overplayed.
“The upturn in the service sector offset slower growth of factory production and construction activity in November, lifting the overall pace of economic growth from October’s 16-month low."
Construction PMI Sotens the Pound
Sterling entered the Wednesday release following a disappointment delivered the previous day when the Construction PMI fell short of expectations.
"UK construction companies indicated a strong expansion of business activity in November, but the overall pace of growth moderated for the second month running to its least marked since October 2013," say Markit and the CIPS who conduct the UK PMI data series.
Nonetheless, the headline index has now posted above the neutral 50.0 threshold for 19 months running and the latest reading was stronger than the long-run survey average (54.5).
We expect losses in the British pound to be limited owing to the limited weighting of the construction sector in the UK economy.
Manufacturing Data Beats Expectations
The slowdown in the Eurozone will have been a drag to the UK manufacturing sector lately, however currency traders backed the GBP after it was shown that the loss of demand on the continent was offset by strong domestic demand. This is an important observation as it indicates a degree of insulation to the Eurozone problems.
Commenting on the state of the UK manufacturing sector Markit say:
"Although the rate of growth in recent months has remained weaker than in the opening half of the year, the latest survey month nonetheless saw further solid expansions of output, new orders and employment.
"The domestic market remained the main pillar supporting the upturn, while the trend in new export orders remained subdued."
Euro's Week Dominated by ECB Decision and Press Conference
The euro will be in the driving seat this week with the European Central Bank (ECB) set to decide on whether to take more action to boost the Eurozone's economy.
The euro is likely to find little support in the run up to the decision as any decision to boost asset purchases by the ECB will be seen as a negative for the shared currency.
"Prospects of further oil price weakness and prolonged stagnation will likely fuel market speculation of further easing by the ECB. We suspect the market will be looking for any signal of ‘increased intent’ from Draghi to support views of further easing. Uncertainty surrounding the meeting will likely keep EUR/USD relatively range bound until Thursday," say Lloyds Bank in a currency briefing to commercial clients.
Direction in the euro dollar exchange rate is expected to remain in negative territory with trend momentum strongly suggesting further declines are possible as the US Federal Reserve heads to its first rate hike in years during 2015.
The decline in the euro pound exchange rate is however predicted to to remain stalled around current levels.
However, you would be hard pressed to find a currency forecaster who is not backing gains by the pound over the euro in 2015.
Further Dollar Strength Forecast
The larger theme in global FX at the present time remains the strength of the US dollar, in place since the middle of 2014.
Can this strength continue?
Giving a 'yes' to the question is Phil Seaton at LS Trader:
"The dollar continues to recover from the recent corrections that were seen against several of the major currencies and we may see the dollar break to new highs against each of the remaining majors over the coming week or so.
"The dollar index remains just pips below the recent high, and the Euro which dropped to within a few pips of its recent low may also break out this week. A Euro at new lows and a dollar index at new highs would both confirm the other’s move and would suggest further dollar strength."
