GBP slumps as January services PMI hits 16-month low

Yesterday’s UK service sector index completed a trio of below-forecast PMIs, signalling a poor start to 2018 for the UK economy and weakening the pound.

The pound starts today largely in positive territory. While the GBP/EUR exchange rate has fallen -0.2% to €1.1253, the GBP/USD exchange rate is holding above opening levels at US$1.3956. GBP/AUD has risen 0.2% to AU$1.7741, but GBP/NZD has dropped -0.5% to NZ$1.9098. GBP/CAD is holding just above opening levels at C$1.7481.

Read on to see what other developments were weighing on pound exchange rates yesterday…

What’s been happening?

The pound was on poor form yesterday, weakened by fresh fears about the government’s aims for Brexit and poor economic data.

Markets were reacting to comments made over the weekend from Downing Street that the UK would definitely be leaving the customs union when it split from the EU, which suggests that the market-unfriendly ‘hard Brexit’ option is still firmly on the table.

On top of this, the January services PMI dropped to a 16-month low of 53, instead of barely moving from 54.2 as forecast. Taken with the poor manufacturing and construction indices released at the end of last week, the latest services data suggests that the UK economy slowed last month.

The euro may have been on mixed form elsewhere, but GBP/EUR dropped yesterday.

Eurozone service PMIs showed that private sector growth in the currency bloc had reached an 11-year best during January, although investor confidence weakened and December retail sales figures showed the expected -1% contraction on the month.

The pound tumbled versus the US dollar, which was sent rocketing higher after the ISM non-manufacturing composite index surged to its best level in over 12 years.

Economists had predicted a rise from 56 to 56.7, but the index for January actually clocked in at 59.9.

This greatly bolstered market hopes of further rate hikes this year from the Federal Reserve.

What's coming up?

The UK data calendar is virtually empty today, which means the pound will be left at the mercy of any fresh Brexit developments that might arise.

This morning’s Eurozone retail PMIs could lend the euro strength if they print firmly, as this would further underline the robust state of the currency bloc’s economy.

US trade balance figures for December are set for release today, and are expected to show a widening deficit, but markets may be more interested in a speech from Federal Reserve official James Bullard.

Bullard will be discussing the US economy and monetary policy, so it seems more than likely markets will receive some fresh clues regarding the outlook of the Federal Reserve with regards to interest rates in the long-term.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.