Yesterday the Pound put on a patchy performance, fluctuating against the Euro and easing lower against the US Dollar.
While the receding odds of the UK’s central bank introducing a rate hike before next year have taken a toll on the currency, additional declines were sustained as the result of a slightly below-forecast UK construction report.
Early on Wednesday the Pound came under additional pressure as the British Retail Consortium reported a 1.4 per cent decline in UK shop prices.
A slide of 1.3 per cent had been forecast.
The report showed that annual food price inflation held steady but that the drop in the price of other goods accelerated.
However, there was good UK news as the day continued.
UK services growth slows by less-than-forecast
Although economists had projected that the UK’s services PMI would slide from 58.7 to 58.2 in May it only edged to 58.6.
Similarly, the composite index eased from 59.2 to 59.0 – better than the estimate of 58.7.
Neither dip was as steep as expected, but both signalled a slight easing in the pace of UK output.
That being said, the services report did detail that new work and activity climbed strongly, as did confidence and wages.
The gauge also remains well above the 50 mark dividing contraction from growth.
Markit economist Chris Williamson said of the services result; ‘The UK economy continued to boom in May, in what is the best spell of growth since 2007 […] The really great news is that job creation continued to run at the record pace seen in April, meaning unemployment looks set to fall further.’
As regards the prospect of a Bank of England rate increase, Williamson observed; ‘With every strong PMI reading, the more lively the discussion will become among the Bank of England’s Monetary Policy Committee that a pre-emptive early hike in interest rates is warranted.’
After the report was published the Pound remained 0.10 per cent lower against the US Dollar but strengthened modestly against the Euro.
Advances against the Euro were limited as the Eurozone’s first quarter growth report showed expansion of 0.2 per cent, as initially estimated.
Earlier in the day final German and Eurozone services PMI were negatively revised, although all measures remained in growth territory.
Before the close of the North American session the US ADP employment change report could trigger further movement in the GBP to USD exchange rate.
Updated: 05/06/2014
With two influential central bank rate decisions taking place today, the Pound was trading in a narrow range against the Euro and US Dollar.
The Bank of England might be expected to leave interest rates unaltered and the level of asset purchases unchanged but investors are still adopting cautious positions ahead of the announcement.
Signs of further division among members of the Monetary Policy Committee regarding the timeline for increasing interest rates would be Pound-supportive but these aren’t likely to appear until the meeting minutes are published.
Sterling did edge higher this morning after Halifax published stronger-than-anticipated UK house price data.
The Euro meanwhile is deriving support from this morning’s German factory orders data.
The report showed a seasonally adjusted month-on-month increase of 3.1 per cent, over double the rise of 1.4 per cent anticipated and wiping out the decline of 2.8 per cent recorded in March.
However, German construction PMI did edge from 49.7 to 48.1 in May.
If the ECB chooses to introduce a quantitative easing style scheme on top of a negative deposit rate and interest rate cut the Pound could rally against the Euro in the hours ahead.
Today’s US initial jobless claims figures will be of interest to the GBP to USD pairing.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6755,
Pound Sterling,,Euro,1.2311,
Pound Sterling,,Australian Dollar,1.8045,
Pound Sterling,,New Zealand Dollar,1.9858,
US Dollar,,Pound Sterling,0.5968,
Euro,,Pound Sterling,0.8123,
Australian Dollar,,Pound Sterling,0.5542,
New Zealand Dollar,,Pound Sterling,0.5034,
[/table]
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