Pound Sterling Dips against Euro and Dollar After May PMIs Undershoot
- Written by: Gary Howes
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Above: GBP/EUR at 15-minute intervals showing post-PMI reaction.
The UK economy likely continued to grow in May according to new survey data, but because the figures came in below analyst expectations the British Pound fell back.
The Pound was softer against the Euro and Dollar after S&P Global's services PMI printed at 55.1 in May, down from 55.9 in April and below economist predictions for 55.5.
The manufacturing PMI read at 46.9 - any reading below 50 signifies contraction - down on April's 47.8 and below expectations for a further rise to 48.
The composite PMI - which balances the data to give a clearer indication of broader economic performance - read at 53.9, below expectations for 54.6 and the previous month's 54.9.
"May data signalled another solid increase in private sector output, but the speed of expansion slowed since April," said S&P Global.
Although the data suggests the economy continues to grow this is another example of a major data release coming in below expectations.
Expectations are particularly relevant for currency markets, with the Pound having benefited for much of 2023 as gloomy economic expectations were constantly beaten by real data.
But the pulse could now be turning and underwhelming releases could weigh on the currency over the coming weeks.
The Pound to Euro exchange rate traded a quarter of a per cent lower on the day in the minutes following the release at 1.1475.
The Pound to Dollar exchange rate traded 0.40% lower on the day at 1.2388.
The data reveals divergent fortunes with UK economic growth remaining centred on the service sector, with travel, leisure and hospitality businesses widely commenting on resilient consumer demand.
In contrast, manufacturing firms indicated the steepest reduction in production levels for four months.
This is a scenario also reflected in Europe, and Germany in particular, where another sharp downturn in manufacturing output was revealed earlier in the day.
The outlook now appears increasingly challenging, with firms reporting the rise in interest rates is starting to be felt.
Private sector employment increased for the second month running in May but the rate of job creation was only marginal and remained notably weaker than seen on average in 2022.
Additional staff hiring reflected rising business requirements, especially in the service economy, and renewed recruitment efforts amid improved candidate availability.
New work across the private sector economy meanwhile increased at the weakest pace since February.
The data suggests the UK economy will continue to chug along at an unremarkable rate over the coming months and will raise questions amongst currency analysts as to whether the Pound's strong run is now complete.
