Services PMI causes Sterling Spike
Services Purchase Managers Index (PMI) data was released in Europe and the UK today with varying results. Services PMI is an indicator of the economic situation in the services sector. It captures an overview of the condition of sales and employment. Anything above 50 indicates growth.
There was a slight increase from Germany up by 0.1%, but French figures showed a significant drop of 0.6%. This was enough to see GBP/EUR strike a 2 week high of 1.0939. This was despite a small contraction the UK services sector of 0.3%.
If you are buying Euros I would be wary of thinking this will be a sustained rally. Sterling is being anchored by two major factors.
- Political uncertainty. Historically the currency in question weakens during a period of political uncertainty. With growing pressure on Theresa May to vacate her position as PM it does little to help the pound. Until there is a stable government the pound will have a great deal of trouble making any significant gains.
- Brexit is the other major catalyst for Sterling weakness as there is no clarity on the UK’s stance and there is conflict between UK negotiators and Brussels over payment of the proposed exit bill. Bad news is better than no news on the currency market which is why GBP/EUR still sits below 1.10.
There is also the possibility the ECB could announce tapering QE. If this is the case GBP/EUR could reach parity by the end of the year.
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