The British pound and Mark Carney: Why today's Services PMI data is so important for the outlook for pound sterling

 In the broadest sense monetary expansion typically lowers the value of a currency through the supply / demand dynamic, and when currency traders forecast more money printing at the BoE they cut back on exposure to sterling.

Indeed, one respected analyst has forecasted an agressive devaluation of the pound in coming months.

However, another analyst believes that today's Services PMI data could be a game-changer for sterling.

Ross Walker at RBS tells us that today's strong showing by the service sector is a 'dramatic development' for the UK economy:

"The key conclusion from the May services PMI survey is that these numbers bolster significantly the chances of solid services output growth in Q2.

"An acceleration in UK GDP in Q2 would be a dramatic development.

"There would be immediate monetary policy implications which would challenge expectations ofradical 'monetary activism' by a Carney-led BoE.

"Even if the data only show a near-term improvement, it is hard to see how a Carney-led BoE would implement more radical monetary policy loosening against the backdrop of an acceleration in GDP to trend-like growth rates.

"With inflation descending back to target and economic growth reviving, Mark Carney's appointment as BoE Governor is looking less like the biggest 'hospital pass' in central banking and more like a remarkable piece of timing/good fortune."

If markets expect Carney to hold steady on his ascension to power at the BoE then expect further GBP gains in coming weeks.