A bigger-than-predicted slowdown in the UK services sector has pushed the Pound lower versus the Euro and US Dollar today.
Afternoon Update, 3rd Feb; The US payrolls figure has outstripped forecasts after printing at 227,000, but sluggish wage growth and a weaker-than-expected non-manufacturing composite PMI have undermined US Dollar demand. USD EUR has weakened, but USD GBP gains remain strong.
Worse-than-Expected Fall in Services PMI Undermines Pound Sterling
The Pound is weakening today after a larger-than-expected drop in the UK services PMI for January. With recent GDP data highlighting again that the services sector is entirely responsible for UK economic growth, investors were always going to be sensitive to the latest Markit releases.
The index had been predicted to edge down from 56.2 to 55.8, but instead dropped to 54.5.
The latest drop could be seasonal – consumer spending is naturally likely to have weakened in the month after Christmas – but nonetheless investors are concerned about any slowing in the UK’s powerhouse.
Upwards Revisions to Eurozone PMIs Fail to Boost Euro
The Euro is rudderless today, with the morning’s Eurozone data being positive enough to keep EUR GBP above opening levels but not enough to significantly raise the common currency against the weakened Sterling.
The Eurozone services PMI unexpectedly edged higher to 53.7, instead of remaining at 53.6 as forecast; a five-and-a-half-year high.
While the French composite rose to a 67-month high, the Germany index weakened to a four-month low.
These figures were finalised versions of previous estimates, so investors have largely already priced-in the strong economic performance, even if the data did broadly better initial estimates.
US Dollar Mixed Ahead of Key US Non-Farm Payrolls Report
The US Dollar is advancing against both the Pound and the Euro today, even with traders reluctant to act ahead of the day’s key economic data releases. Investors have high hopes for the non-farm payrolls report, thanks to strong employment data earlier in the week.
While economists are quick to point out that there is no correlation between the ADP employment change figure and the performance of the NFP, investors are nonetheless taking Wednesday’s above-forecast surge as a good sign.
The job creation figures had been forecast to clock in at 168,000, but instead rocketed up to 246,000.
Pound Euro, Pound US Dollar Forecast; US Data to Create Volatility for Pound Exchange Rates
Traders already have high hopes for today’s US labour market data and ISM non-manufacturing composite. While the forecasts are for 175,000 newly employed in January, the stellar performance of the ADP figures has traders expecting a much stronger performance. Therefore, even an on-forecast result – while representing an improvement on December – may be met with disappointment.
Due to the gravity of the US data, Pound US Dollar exchange rates are likely to be significantly affected by the afternoon’s publications. GBP EUR will also be influenced due to the negative correlation between USD and EUR, meaning if the data buoys the ‘Greenback’ the common currency will weaken, allowing Sterling to rise.
Current Interbank Pound Exchange Rates
At the time of writing, the Pound Euro exchange rate was trading around 1.16, while the Euro Pound exchange rate was trending around 0.86.
The Pound US Dollar exchange rate was trending in the region of 1.24, while the US Dollar Pound exchange rate was trading 0.80.