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Services PMI Data Jumps, Yet Pound Sterling Won't Budge!

Services sector data ahead

  • Pound to Euro exchange rate: 1.1787, day's high: 1.1828, day's low: 1.1781
  • Pound to Dollar exchange rate: 1.2885, day's high: 1.2905, day's low: 1.2830

Another stellar economic release from the UK, and another display of resolute stubborness by the British Pound in response.

The much-anticipated services PMI release from IHS Markit and the CIPS showed a reading of 55.8 where economists had been forecasting a reading of 54.5. This is an improvement on the previous month’s 55.0.

The services sector represents by far the largest part of the economy accounting for industries such as hospitality, banking, insurance, tourism, advertising, media etc.

The data represents the sharpest rise in business activity since December 2016 with Markit and the CIPS reporting UK service providers experienced a sustained rebound in business activity during April, supported
by the fastest upturn in new work so far in 2017. Job creation also picked up to a four-month high, driven by renewed pressures on operating capacity.

Analyst Scott Bowman at Capital Economics says the recent run of UK PMI data suggests UK GDP growth will bounce back saying the all-sector PMI was consistent with overall quarterly GDP growth of 0.6% or so.

However, the GBP/EUR exchange rate traded unchanged around 1.18 following the news and has, if anything, fallen back.

The GBP/USD holds onto its gains at around 1.2880 having fallen from highs around 1.29 thanks to the Dollar-positive nature of the Federal Reserve announcement made overnight.

Sterling Unfazed by Good News

This makes for a hat-trick of better-than-expected PMI data this week with both construction and manufacturing showing consensus-beating growth.

However, on all three occassions the Pound's response has been lacklustre confirming politics and technical considerations to be the overiding drivers of the currency.

Make no mistake the trend in GBP/EUR and GBP/USD is still up, even though questions are starting to be asked.

Lloyds Bank tell their commercial clients their underlying view remains that current gains in GBP/USD are unsustainable, with the 1.3000 region the ideal area for a lower high to develop.

But, “a stronger PMI this morning, which our economists expect, may provide some support to the GBP,” says Wilkins.

Regarding the EUR/GBP, Wilkins notes momentum studies have turned more positive for the cross, but the exchange rate is still trapped in a range between 0.8400 and 0.8530.

“Our bias is for a shift back towards the medium-term range highs in the 0.8700-0.8900 region.”

This represents a fall to 1.1494-1.1236 in GBP/EUR.

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