GBP Surges as Service PMI Blow Expectations Out of the Water - LIVE Coverage on Tues 5/11
The British pound sterling (Currency:GBP) has surged higher in morning trade following the release of some great stats out of the UK economy's services sector. How far can it go?
Forex rates as of last update:
- The pound euro exchange rate is 0.78 pct up on last night's closing rate at 1.1911.
- The pound dollar exchange rate is 0.38 pct higher at 1.6029.
- The pound Australian dollar exchange rate is 0.62 pct higher at 1.6900.
- The pound New Zealand dollar exchange rate is 0.24 pct higher at 1.9331.
(Note: The above are spot market quotes; your bank will affix a discretionary spread to the figures when passing on a retail FX rate. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering up to 5% more FX. Please find out more here.)
16:50: Are you ready for Industrial and Manufacturing Production data?
So the services sector provided GBP with impetus today; can the manufacturing and industrial production numbers also deliver?
Industrial Production (YoY) (Sep): Predicted at +1.8%, Previous was -1.5%.
Industrial Production (MoM) (Sep): Predicted at +0.5%, Previous -1.1%.
Manufacturing Production (MoM) (Sep): Predicted at +1.1%, Previous was -1.2%.
Manufacturing Production (YoY) (Sep): Predicted at +0.7%, Previous was -0.2%.
16:13: Continuation of GBP/USD gains to 1.61 likely
Matt Weller at GFT confirms GBP is poised for further gains:
"After a quiet North American and Asian session, the GBP/USD exploded higher in today’s early European trade on the back of the strongest Service PMI report in 16 years. Predictably, this blowout report created a large Bullish Engulfing Candle on the 4hr chart, suggesting that the rally could continue into today’s North American session. The unit is currently testing possible resistance from the central Monthly Pivot Point at 1.6062, but if that ceiling is conclusively broken, a continuation up toward 1.6100 is likely next."
16:09: GBP/USD not yet showing signs of 'excess'
"GBP's Holding up in a tight midsession range/short-term flag with support at 1.6035~, retaining the fast morning drive through 1.60. With no sign of excess yet, remain focussed on 1.6078 & 1.6125~" - FX Market Alerts.
14:48: Bank of England to raise interest rates in 2014?
Today the NIESR suggested the Bank of England may have to raise interest rates as soon as the second half of 2015. This compares to the Bank of England's prediction of such a rate only happening in late 2016.
Omer Esiner at Commonwealth Foreign Exchange thinks this rate hike could come even sooner that the 2015 call by the NIESR:
"The blowout number is consistent with a very health improvement in U.K. growth that could see the BOE begin to reduce monetary stimulus in 2014."
Sterling recovered from a two-week low after data overnight showed the PMI for the U.K.’s services sector rose to its highest level in 16 years in October. The strong report comes on the heels of yesterday’s solid construction sector PMI and adds to the growing list of economic data that suggest Britain’s economy is improving at a healthy clip.
13:27: Buy GBP on dips
The past week has seen sentiment turn negative on GBP/USD; today's rally has prompted Shaun Osborne at TD Securities to suggest traders buy on dips;
"Another addition to the string of surprisingly strong UK data lately (UK Services PMI at 62.5 v 60.0 expected) has propped up the GBP to the top stop in the G10 FX performance rankings overnight. On the charts, the rally shifts the short term bearish trend that had been developing over the past week, and in the coming days a buy on dips now looks to be the better tactical strategy—from a technical perspective at least. UK industrial production (tomorrow), the BoE (Thursday), and US jobs (Friday) all pose even risks, however, that could make for some choppy moves."
12:49: Is EUR/GBP at fair value?
Interesting perspectives on the valuation of EUR/GBP by Stephen Gallo at BMO Capital:
"Based on interest rate swap spreads alone, EUR/GBP appears to be roughly at fair value (0.8350), or just a touch above. That sub-0.8400 valuation, however, means that UK nominal rates are still firming up, and moving in favour of the GBP.
"For the purposes of our medium-term GBP view which is skewed towards the downside, we are still questioning the importance of plausible feedback loops at work within the UK economy, and what, ultimately, a stronger GBP and higher rates might mean for it. As business investment languishes, links between housing, other asset prices, lending, private consumption and services ultimately appear to be getting stronger. It also seems likely that monetary stimulus would have a role to play here.
"If persistent strength in UK rates and the GBP ignores the potential medium-term consequences of new BoE macro-prudential tools, it also potentially downplays the strength of the feedback loops as well. Housing and other related factors do not have to ‘drive’ the recovery in order to be ‘central’ to it."
12:12: Critical support a key challenge for the GBPUSD bears
Those looking to buy GBP using USD will take confidence from the firm support levels underpinning GBP/USD.
"GBPUSD continues to oscillate between 1.5884 and 1.6260 . With MACD threatening to cross below zeroline further extension of weakness should be expected after a short recovery rally (off critical support at 1.5884). However, critical support will be a key challenge for the bears. The support levels from here are 1.5884 (13th Sept high), 1.5759 (17th June high), 1.5726 (65 dma), 1.5600 (resistance turned support) then 1.5471 (200 dma). Watch for next resistance to come into play at 1.6082 (30th Oct pivot high), 1.6270 (1st Oct high) then 1.6343 (2013 high)." - Ipek Ozkardeskaya at Swissquote Bank.
11:53: EUR/GBP re-enters bearish technical channel
Ipek Ozkardeskaya at Swissquote Research tells us why the EUR/GBP is now widely favoured to fall:
"Last Thursday’s post-Fed short squeeze combined to way-better-than-expected UK PMI services reading (released in the morning +62.5 in Oct vs. 60.0 exp. & 60.3 last) pulled the cross down to a fresh Oct-Nov bullish channel bottom. MACD 12, 26 stepped in the red zone. Divergence in BoE/ECB policy outlooks should empower EURGBP-bears and pull the levels below 0.8350, where the cross will technically re-enter the previous downtrend channel."
11:26: British pound forecasted to achieve 1.2 against the euro, 1.61 vs the US dollar
Momentum now firmly rests with GBP following a good run of Autumn data. What levels can we expect the currency to achieve from here?
We hear from a couple of currency market forecasters on where they are tipping GBP/EUR and GBP/USD to head next.
10:40: GBP EUR at 1.2?
"A week ago, sterling fell to a one-month low against the euro but has recovered by more than 2% to 1.19 and is back over 1.60 against the US dollar. We are looking for sterling to nudge the physiological 1.20 level against the euro. We still expect the dollar to recover against the pound following the weakness brought about by the recent government shutdown and so still view 1.60 as a favourable level to buy dollars." - Andy Scott at HiFX.
09:42: Reactions to today's strong Services PMI reading
"Last time services were that strong in the UK? Tony Blair was still picking out the drapes for No. 10 Downing St." - UKForex.
"UK October PMIs signal record rates of output growth and job creation." - Markit Economics.
"GBPUSD accelerates to 1.6040 on PMI." - FXStreet.com
ING meanwhile say this reading is the equivalent to 6% annualised growth. Eyewatering.
09:30: BAM - Service PMI blow expectations out of the water
UK Services PMI (October) - 62.5 vs 60.0 expected and 60.3 previous. A massive beat.
Sterling surges!
08:37: Lower UK Service PMI is likely to keep cable on offer towards 1.59
UniCredit Bank give their predictions ahead of today's PMI: "A lower UK Service PMI is likely to keep cable on offer towards 1.59. 2Y swap differentials remain at 36bp, indicating a correction towards 1.55 in the short term. EUR-GBP could re-approach 0.85."
Ooverall UniCredit expect a quiet session ahead of the ECB meeting and NFP later this week.
08:34: Markets unlikely to fret should services PMI fall
Ahead of today's main eco-stat event, Lloyds Bank Research say:
"The UK services PMI will be the major focus for GBP, and since the market expectation is for a very modest drop from extremely high levels, the immediate risks for GBP may well be on the downside. Even so, the high level of the services PMI should be acknowledged, and from here even a drop of two points wouldn’t really be a threat to the underlying positive outlook for the UK economy.
"The UK PMI picture has improved dramatically relative to the US in recent months, and given the uncertainties still surrounding US fiscal policy, it is hard to make a case for a weaker pound when US PMIs remain above the level of the US ISM. We still see good support for GBP/USD in the 1.59 area, and it would likely take a number below 59 on UK PMI services for that to be challenged."
08:12: No rate cut at the ECB this week say Deutsche
A big driver of the pound / euro exchange rate at present is the consideration for a cut to the ECB refi rate this week. The exchange rate has risen alongside expectations that the ECB now has room to act owing to sharply lower inflationary pressure. Mark Wall at Deutsche Bank says a cut this month is unlikely:
"We expect the ECB easing bias to be reiterated but we are not expecting a rate cut on 7 November. Draghi will likely deflect the exchange rate’s relevance via its impact on inflation forecasts. This could strengthen the credibility of the forward guidance message, but this is just rhetoric — a rate cut would require a rejection of the current recovery hypothesis."
"The market is currently focusing on the recent appreciation in the Euro to try to second guess the ECB. We think that the most recent movements change only marginally the overall macro landscape for the central bank. What is more concerning, in our view, is the persistence of a strong euro since the beginning of the “great recession”, relative to its “fundamental” value for a number of member states. This creates the risk of a vicious circle, where, in large swathes of the monetary union, capital and labour allocation would increasingly avoid the tradable sector, materialising in a further de-industrialisation which, ultimately, would depress trend productivity and potential GDP."
08:10: The agenda today dominated by Services Sector PMI
Yesterday's Construction PMI underpinned the British pound sterling (Currency:GBP) - can the services sector deliver something similar today?
Consensus forecasts are for a reading of 59.8; down from last month's 60.3.