The Pound came under fresh selling pressure yesterday despite a better-than-expected Services PMI print for February. Two key factors were in play here, namely concerns over the state of employment in the sector with staff not being replaced, along with a lack of progress in the increasingly time-critical Brexit negotiations. A slowdown in the jobs market risks an upset of the wage growth picture, a key metric determining the monetary policy stance of the Bank of England (BoE). The confluence of slacking investment and employment might precipitate further supportive measures from the BoE and undermine the Pound. One thing is clear, in addition to the March 12th crucial Brexit vote, unemployment and wage date released on the 19th of March will be under increasing scrutiny.
Tomorrow’s European Central Bank meeting has the potential to knock the Euro markedly lower, especially against the US Dollar. The slowing Eurozone economy is pushing the ECB to react in a bid to shore up growth, although they will need to do so in a measured way. The news right now isn’t universally negative, with highlights yesterday including Greece having completed its first 10-year bond auction since the credit crisis and Italy’s service sector returning to growth. Mario Draghi’s team arguably find themselves cornered, with word of stimulus measures negative for the Euro, while failure to address the situation would be seen as storing up problems for later in the year. Both scenarios have the potential to be Euro-negative.
The run lower continues for the pair, with UK economic and political uncertainty giving little cause for cheer. Any reversal here, especially with the possibility of progress emerging over Brexit, could be sufficient to help stem the sell-off, although next week’s vote in Parliament is likely necessary before any hope of a reversal in fortunes can be seen.
Better-than-expected US economic data yesterday afternoon saw the pace of the pair’s recent sell-off accelerate. The prospect of a dovish ECB statement tomorrow is also weighing here, so further positive US readings such as the ADP Payroll print today could result in further selling.
The Pound is trading largely sideways against the Euro right now. Until there’s some fresh clarity over Brexit, which could still be almost a week away, the cross may find it difficult to make further gains.