Pound firm against euro and US dollar on ECB and Fed speculation

The pound is holding up quite well in spite of this week’s trio of disappointing UK reports and managed to register gains against some of the majors on Wednesday.

GBP/EUR clambered to €1.1417 from €1.1355, GBP/USD advanced from $1.2900 to $1.2946, GBP/AUD edged up to AU$1.7056 from AU$1.6938, GBP/NZD rose to NZ$1.7799 from NZ$1.7720 and GBP/CAD recovered from C$1.6695 to C$1.6807.

What could happen in the currency market today? Keep scrolling to find out…

What’s been happening?

While the pound didn’t tumble on Wednesday, its performance was a little lacklustre after the UK’s services PMI came in at 53.4, down from the previous reading of 53.8 and slightly worse than the predicted result of 53.4.

Markit economist Chris Williamson observed; ‘A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings. Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it’s clear that the economy heads into the third quarter losing momentum.’

The political uncertainty inspired by PM Theresa May’s snap election and the official start of Brexit negotiations were cited as reasons for the dip in service sector output.

However, as the result wasn’t much worse than expected, the pound’s losses were minimal.

GBP/USD was also able to strengthen following the publication of minutes from the most recent Federal Open Market Committee (FOMC) meeting.

The minutes indicated that some Fed officials were concerned about the impact of recent rate hikes on the US economy, which left many doubting whether the central bank will end up following through on plans to increase borrowing costs once more in 2017.

The odds of interest rates being increased again currently stand at just over 50%.

What's coming up?

There’s no UK data on the calendar today but there’s plenty coming from other nations to keep the currency market busy.

First up we’ve got another speech from the European Central Bank’s (ECB) chief economist Peter Praet.

Earlier in the week he indicated that the Eurozone isn’t quite ready for stimulus to be unwound, commenting; ‘The baseline scenario for future inflation remains crucially contingent on very easy financing conditions which, to a large extent, depend on the current accommodative monetary policy stance.’

Similar remarks today are likely to leave the euro pressured.

The ECB’s account of its last monetary policy meeting will be of interest, with any references to the future path of monetary policy being closely attended to.

From the US we’ve got the ADP employment change figure, the final services PMI and trade balance figures. If the jobs number impresses and services PMI is unrevised from initial estimates, the US dollar could climb.

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.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.