UK Services PMI beats expectations; GBP/USD posts biggest daily gain in two months

Today’s macro highlights:

  • USD - Trade Balance (April)

UK Services PMI beats expectations; GBP/USD posts biggest daily gain in two months

More good news regarding the UK economy yesterday finally translated into sustainable gains for the Pound. After something of a false start on Monday where the market appeared fixated by one weak UK manufacturing survey, yesterday’s better than forecast services PMI reading saw GBP/USD add almost a full cent. The presence of some better than expected US data failed to detract from gains, adding weight to the idea that the Pound was looking oversold at the start of the week. With a quiet day ahead in terms of UK economic data however, the upside could again be left looking vulnerable. 

Across the Atlantic, it seems as good as inevitable that the Federal Reserve will look to push through a rate hike next week. The latest mortgage application figures due at midday BST are unlikely to provide any direction here, whilst the revised US trade balance figures are set to be of greater interest politically. The expectation here is however that the deficit will continue to grow - Donald Trump’s endeavours to put America first are struggling against a booming economy and a strengthening dollar, both of which will continue to drive the propensity of consumers to purchase imported goods.

In terms of Sterling, the political agenda remains front of mind. Any further speculation as to the outcome of next week’s parliamentary vote over the House of Lords revisions to Brexit legislation will be closely followed and could well serve to increase volatility on GBP crosses in the coming days.

The Pound saw its best one day gain over the US dollar since early April, but sustaining the upward momentum with no fresh data could prove difficult. We’re working on the basis that a rate hike form the US next week is inevitable but any suggestion that the Federal Reserve will only make one more hike beyond this for the remainder of the year could however be the catalyst for further gains.

The pair is struggling to push much above the 1.17 level, which denoted the lows from last December. A notable upset in those retail PMI readings today could skew sentiment over the ECB’s stance on QE, although next week’s policy meeting is going to be far more significant here.

We saw the Pound add almost a cent over the Euro during yesterday’s session, but some of those gains were later eroded off the back of speculation over the ECB and the direction of next week’s policy meeting. Neither currency is excelling right now but further clues over the next steps from respective central banks will likely provide fresh direction.