UK Service Sector Growth Slows, Pound (GBP) Exchange Rates Remain Limp
Pound (GBP) exchange rates remained within a narrow band on Monday morning as markets responded to news that growth within Britain’s service sector slowed in December – shortly after last week’s disappointing UK manufacturing PMI.
The UK’s Markit services PMI fell to 53 in January, down from 54.2 in the previous month and missing the market forecast of 54.3.
This marked the weakest pace of expansion within the service sector since September 2016, with a loss of clients and ongoing concerns regarding the UK’s exit from the EU slowing investment.
Nonetheless, new business did increase at a slightly faster pace in January, with job creation also accelerating to a four-month high.
Coming so soon after last week’s run of poor manufacturing and construction surveys this has effectively occurred as a ‘triple-whammy’ – leaving market hopes for a Bank of England (BoE) rate hike slightly diminished.
Markit’s Chief Business Economist, Chris Williamson described the likely effect the PMI is likely to have on BoE policy:
‘The January slowdown pushes the all-sector PMI into dovish territory as far as Bank of England monetary policy is concerned, historically consistent with a loosening bias. With the survey also indicating weaker upward price pressures, the data therefore cast doubts on any imminent rise in interest rates.’
Looking ahead, UK Brexit Secretary David Davis is set to resume EU negotiations this week and the BoE’s first rate decision of 2018 is also due, set to take place on Thursday.
GBP/EUR Exchange Rate Static despite Strong Growth in Bloc’s Private Sector
The Pound Euro (GBP/EUR) exchange rate stayed mostly immobile on Monday morning, even with an extremely upbeat performance in the Eurozone’s composite PMI reading.
Markit’s composite Eurozone PMI – a track of private sector activity across the bloc – rose to 58.8 in January, up from December’s 58.1 and demonstrating the highest reading since June 2006.
This accelerated activity occurred on the back of a surge in new orders, with output growth accelerating to a near 12-year high and job creation hitting its strongest pace since late 2000.
‘The strong upturn is also broad-based,’ Markit’s Chis William stated. ‘The survey data is therefore indicating that the Eurozone has started 2018 with very good growth momentum, and that price pressures are building commensurately. If such impressive numbers continue to be seen in coming months, expect policymakers to sound increasingly hawkish.’
Looking ahead, markets will be keen to assess European Central Bank (ECB) President Mario Draghi’s speech in Strasbourg later today, with the ECB’s annual report likely to be discussed.
Whilst it is unlikely that he will touch on monetary policy plans, his attitude, whether optimistic or cautious, could have ramifications on the demand for the Euro.
GBP/USD Exchange Rate Pauses after US Jobs Report Boost
The US Dollar (USD) took a break this morning after its recent rally on the back of last week’s upbeat employment readings.
Friday’s data took the form of US wage growth, which accelerated by 2.9% in January; the US unemployment rate, which held steady at the 17-year low of 4.1%; and non-farm payrolls, with 200,000 new jobs being added at the start of 2018.
This pointed to growing positive momentum within the US economy, with markets now also increasingly pricing in hawkish moves from the US Fed.
As of Monday, however, the GBP/USD exchange rate has held its own, resilient in the face of the UK’s trifecta of disappointing PMI’s and news that Britain will indeed be leaving the EU customs union after Brexit.
Looking ahead, markets will be keen to assess the US ISM non-manufacturing services composite reading, with a jump forecast from 55.9 to 56.6.
GBP/CAD Exchange Rate Slides on Quiet Data Day
The Pound Canadian Dollar (GBP/CAD) exchange rate slipped on Monday, seemingly more sensitive to the disappointing performance of the UK’s private sector, than to the current dip in crude oil prices.
Brent Crude slipped to $67.89 per barrel on Monday, despite the best efforts of the Organisation of the Petroleum Exporting Countries (OPEC) to halt the slide by extending their output cuts by another nine months (to March 2018).
On the data front there’s very little going on this week for Canada until Friday, when their employment readings will be released. In the meantime the markets will likely focus on the next phase of Brexit negotiations and this week’s run of central bank interest rate decisions.
GBP/AUD Exchange Rate Edges Backward Ahead of RBA Rate Decision
The Pound Australian Dollar (GBP/AUD) exchange rate edged backwards on Monday as markets prepared for the Reserve Bank of Australia’s (RBA) first interest rate decision of 2018 (scheduled for Tuesday).
Markets are not currently expecting a rate hike from this meeting, although recent higher growth and inflation rates could increase optimism in the RBA’s accompanying statement.
On the data front, Australia’s TD securities inflation reading disappointed, with the year-on-year reading for January slipping from 2.3% to 2.0%.
This had very little effect on the GBP/AUD exchange rate, however.
GBP/NZD Exchange Rate Holds Firm, Global Dairy Price Auction, RBNZ Interest Rate Decision Ahead
This week is going to be a big one for the Pound New Zealand Dollar (GBP/NZD) exchange rate, with markets preparing for the global dairy trade price index, the NZ employment figures (both due on Tuesday) and the Reserve Bank of New Zealand’s (RBNZ) interest rate decision, due on Wednesday.
Markets are not currently expecting a rate hike from the RBNZ, however, with New Zealand’s inflation rate recently coming up short at 1.6% Q4 2017 vs the 1.9% expected.
As of Monday morning GBP/NZD has held firm, albeit within a narrow band.