The markets began in risk-off mode on Tuesday after a volatile start to the week. The Pound Sterling exchange rate slipped to levels of below 1.40 against the US Dollar (GBP/USD) and resides around the 1.12 mark versus the Euro (GBP/EUR).
Markit’s Services Purchasing Managers’ Index (PMI) came in below expectations at 53.0 in January, down from the previous 54.2. Economists had expected a much smaller decline to 54.1. Meanwhile, the Composite PMI came in 53.5 from 54.9.
In the Eurozone, Retail Sales fell from 2.8% to 1.9% in December on the year. European Central Bank (ECB) President Mario Draghi spoke yesterday, giving another warning on Brexit, saying:
‘The bottom line is this one – either the negotiation is well managed and there won’t be substantial risk, or it is not and then the risks will be there, so we’re certainly looking at that and we’ve got to be prepared.’
The US Non-Farm Payrolls figure released last Friday also surprised to the upside, meaning the Greenback has been offered some additional support this week. The January figure came in at 200K rather than the 180K forecast. Meanwhile, investors are preparing for another interest rate hike by the US Federal Reserve in March, following Janet Yellen stepping down and Jerome Powell being appointed.
Broader market volatility might continue to create demand for the US Dollar as the stock market experiences swings and investors head for safe-haven assets. Additionally, the Pound may not be able to fare well with Brexit weighing on the British currency.
Tuesday saw the Pound slip by around 1.30% in Tuesday’s session against the US Dollar, while the Euro stumbled by around 0.60% against the Greenback.