- Pound Losses Reduced by Data – UK Services PMI reaches 17-month high.
- Eurozone Retail PMI Rises – But Euro gains muted
- German Retail Sales Ahead – Single Currency may appreciate if sales rise as forecast.
An impressive UK Services PMI helped GBP EUR return to trending above 1.17 on Thursday after previously falling as low as 1.1644.
UK Service Sector Sees Growth
The Pound-boosting UK services report showed that Britain’s service sector grew from 55.2 to 56.2 in December, beating expectations that it would slide to 54.7 and reaching a 17-month high.
However, there were still concerns that rising prices could deter growth over the next twelve months as inflationary pressures cause prices to appreciate at their fastest rate since April 2011, with the uncertainty of ‘Brexit’ and the low value of the Pound likely to exacerbate these fears. As Dean Turner at UBS Wealth Management explained;
‘As we move further into the year, our expectation is that these positive effects may begin to fade. Moreover, higher inflation is likely to erode household income growth which could dampen the up-to-now buoyant consumer.’
The rise follows surprise jumps in the UK’s Manufacturing and Construction PMI’s earlier in the week, which helped the Composite PMI surge from 55.3 to 56.7, its highest levels since July 2015.
The data comes as something of a surprise given that most forecasters had expected the UK economy to enter recession in the wake of the UK’s vote to Brexit from the EU.
The rise of the ‘all-sector’ PMI also lead Chris Williamson, Chief Business Economist at IHS Markit, to speculate that the upbeat data could provide support for the Bank of England (BoE) to raise interest rates later this year depending on the impact of ‘Brexit’ negotiations, as he said;
‘At face value, this improvement suggests that the next move by the Bank of England is more likely to be a rate hike than a cut but policymakers are clearly concerned about the extent to which ‘Brexit’ related uncertainty could slow growth this year.’
If the UK economy does manage to continue outperforming expectations, the Pound could head higher over the course of 2017.
Euro Unmoved by Eurozone Retail PMI
The release of the Eurozone’s latest Retail PMI did little to strengthen the Euro this morning as figures fell short of expectations.
Markit reported that the Eurozone Retail sector grew from 48.6 to 50.4 in December, however this was slightly behind market predictions that it would rise to 50.5.
The disappointing result was attributed to the gloomy outlook in Italy where retailers were forced to endure another month of lacklustre sales as the third-largest economy continues struggling due to the political and economic woes of recent months.
German Retail Sales May Undermine GBP EUR
The Pound may edge lower against the common currency tomorrow following the release of Germany’s latest Retail figures, which are expected to show that sales jumped from -1.0% to 1.2% in November.
However, an expected dip in the overall retail figures for the Eurozone could weigh on the Euro as sales are expected to have dropped from 2.4% to 1.9% over the same period.
Meanwhile, a lack of notable data on Friday may weigh on the Pound as investors are left to focus on ‘Brexit’ and the lack of knowledge over what the UK government’s plans for leaving the EU are, despite being less than three months away from when Article 50 is expected to be triggered.