Hawkish McCafferty Joins MPC Doves
The Monetary Policy Committee (MPC) vote to leave interest rates on hold has been unanimous for the first time since June. Ian McCafferty, who has pressed for a 0.25% hike during the past six meetings, did not dissent during this meeting. The Pound is still soft against the Euro following the announcement, but has recovered to opening levels after poor data from the US. Initial Jobless Claims and Continuing Claims both performed worse-than-expected, while Factory Orders and Durable Goods Orders both fell further-than-predicted.
US Dollar (USD) Drops as Non-Manufacturing Composite Overshoots Predicted Fall
Fears over the health of the US economy will not have been abated by the ISM Non-Manufacturing Composite figures today. The index was predicted to slip from 55.8 to 55.2, but instead dropped -2.3 points to 53.5. While still showing an expansion, the result paints a worrying picture of the US economy, especially when combined with the previous Manufacturing index, which failed to show the level of slowdown in contraction that economists had been hoping for.
Better-than-expected UK PMIs Boost Pound (GBP)
The Markit Services and Composite PMIs have both printed better than economists forecast today, helping Pound Sterling to extend a bullish lead on the Euro and US Dollar. The Markit/CIPS Services index rose by one point rather than dropping by one, while the Composite index saw a 0.8 point gain rather than a -0.3 point drop.
We’re witnessing contradictory performances today from Pound Sterling, which is trending up 0.1% against the Euro, but down -0.1% against the US Dollar. ‘Brexit’ concerns continue to weigh heavily on GBP, while poor PMI results are holding EUR back and concerns over the US economy are cooling sentiment towards USD.
Increased Potential for Britain’s EU Membership Reform Strengthens GBP/EUR
David Cameron’s renegotiation of the terms of Britain’s EU membership has been a key driver of Pound Sterling exchange rates in recent days. For once, it seems that the discussion is strengthening GBP, after European Council President Donald Tusk outlined a proposed reform deal in a letter to EU leaders. David Cameron will defend the deal in Prime Minister’s Questions later today, which will give investors a chance to assess the reaction of MPs to the proposals.
The Euro, meanwhile, has been weakened by another slew of weak PMIs. The results come after manufacturing PMIs mostly printed poorly on Monday. Germany’s Services and Composite PMIs both fell by -1 point and while the French indexes both improved, they did so by a smaller margin than was expected. The Eurozone Services index dropped to the expected level, while the Composite slipped -0.1 point less-than-anticipated.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently making gains of 0.4%.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Negative Despite US Economic Concerns
Doubts over the US economy have been growing since the Federal Reserve raised interest rates in December. Turmoil in the stock markets following developments in China and the worsening price of oil have shaken confidence, with US pessimists becoming increasingly vocal. News that consumers were holding onto savings made thanks to cheap oil prices, instead of spending it on big-ticket purchases, has softened hopes of strong inflation in 2016. Consumers are responsible for nearly three-quarters of economic activity in the US.
Economists are also pointing to the rate of auto sales as a warning sign for the health of the US economy. Auto sales are expected to remain below the highs of October and November, where an excess of 18 million vehicles were sold. Auto sales have grown faster than retail sales over the past few years, so a contraction in these big-ticket purchases as financial conditions tighten could weaken GDP.
Pound Sterling to Euro, US Dollar Exchange Rate Forecasts
There is no Eurozone or UK data due out for the rest of the day. Traders will be paying close attention to the US ISM Non-Manufacturing Composite later during the North American session, as well as the Crude Oil Inventory figures.
Latest GBP, EUR, USD Conversion Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading around 1.3239, while the Euro to Pound Sterling (EUR/GBP) exchange rate is trending in the region of 0.7554.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4440, while the US Dollar to Pound Sterling (USD/GBP) exchange rate is trading around 0.6925.