Strong UK Q4 outlook boosts pound after Thursday tumble

Sterling bounced back on Friday, shored up by a strong reading from the latest services sector data.

The pound starts this week on soft footing. GBP/EUR is currently flat at €1.1264, while GBP/USD is inching higher in the region of US$1.3083. GBP/AUD is also flat at A$1.7090, although GBP/NZD has climbed half a percent to NZ$1.8995. GBP/CAD is stagnant at C$1.6686.

Read on to learn what encouraging economic signs, civil unrest and central bank policy changes fuelled movement in the GBP/EUR and GBP/USD exchange rates at the end of the week…

What’s been happening?

The pound was rebounding on Friday after having slumped on Thursday following a disappointing set of meeting minutes to accompany the Bank of England’s (BoE) rate hike.

The October services PMI followed the pattern of the week’s earlier manufacturing and construction indices to show a strong uptake in the rate of growth. Although economists warned that business confidence was still falling and that more inflation was in the pipeline, markets were cheered after the index jumped from 54.1 to 55.8.

The euro, meanwhile, was left on uncertain form as political tensions in Spain unsettled markets. Eight members of the now-deposed Catalonian government were remanded in custody. Spanish prosecutors are seeking a European arrest warrant for the region’s Prime Minister, Carles Puigdemont, who fled after declaring independence in response to Spanish threats of imposing direct rule.

President Donald Trump announced that he was appointing Jerome Powell to be the new Chair of the Federal Reserve in 2018 when Janet Yellen’s term expires. This was a safe pick from a market point of view, so the US dollar was largely unmoved by the announcement. On top of this, the latest labour data provided little reason to either buy or sell the US dollar.

Job creation was respectable but significantly under forecast and wage growth figures disappointed. This wasn’t enough to soften the enormous odds of a rate hike next month, but neither was it particularly encouraging.

What's coming up?

There was no notable data on the UK calendar today, leaving markets to focus on the long-term monetary policy outlook and dwell on the potential fallout of Brexit.

More finalised Eurozone PMIs, as well as investor confidence data, are set for release later. Individually, each of these low-impact releases is unlikely to cause much euro volatility, but the volume of data could serve to reinforce or undermine the overall picture of the Eurozone economy as one that is enjoying a robust recovery.

There is little on the US data calendar today; although the speeches of Federal Reserve officials Potter and Dudley will be of interest to the market, they are unlikely to provide significant support or damage to the prospect of a rate hike next month.

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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.