The Pound exchange rate has been able to climb versus the US Dollar (GBP/USD) and Euro (GBP/EUR) on Thursday morning after German data disappointed and investors awaited high-tier US ecostats.
Yesterday morning, the latest Markit Services Purchasing Managers’ Index (PMI) beat market expectations coming in at 54.3, pointing to robust growth in the sector. The data follows other UK PMI readings this week and could point towards economic growth in the region of 0.4% in the third quarter, which would match Q2’s expansion. Like the manufacturing and construction indices, the services report was marred with signs the sector is hitting its supply capacity, suggesting the UK is in the late stages of its expansion. Increased work backlogs and labour shortages have been features of all three reports.
The fall in the US’s July Trade Balance showed signs that Trump’s trade tactics may be worsening the US’s trade position as US importers stockpile goods ahead of threatened further Chinese tariffs. The US’s trade deficit with China reached a record high at USD36.8bn. US exports fell one percent, driven by steep drops in shipments of aircraft and soybeans, following China’s imposition of retaliatory tariffs in July. However, with domestic demand growth firing on all cylinders, disappointing trade data, skewed by the timing of tariffs, is unlikely to be a major concern or dent the dollar’s strength too significantly. Market attention remains focussed on trade developments with Canada and China, Friday’s Non-farm Payrolls number and Federal Reserve speakers.
Pound Exchange Rate Jumps on Brexit Reports
Brexit related headlines continued to stir markets yesterday as well. The Pound gained over a cent against the Dollar on a Bloomberg headline from an unnamed source that suggested a no transition deal Brexit would be avoided by the March 2019 deadline. Although the story was unsubstantiated, it was plausible enough to move markets and contained typical features of an EU deal.
The deal was a typical EU ‘kick the can down the road’ style agreement. The story claimed that both parties had agreed to separate the Withdrawal Agreement from a deal on the UK’s future relationship with the EU. However, the Pound partially reversed its gains when a German Government official denied the story, saying their position remained unchanged. The Pound continues to be at the mercy of news headlines in the coming months and will probably remain volatile in the near-term.
GBP/EUR, GBP/USD Exchange Rate Forecasts
For the day ahead, German factory orders are the main highlight of the European session before attention turns to the pre-cursor of Friday’s Non-farm Payrolls release; the ADP Employment Change figure. This measure of private sector hiring will come alongside estimates of productivity, labour cost, factory orders and durable goods orders. The ISM Non-Manufacturing index will also be released. Attention should be paid to its employment sub-index. To add to the US-centric trading session, Fed’s Williams (a hawk) is scheduled to speak and the topics listed include the national economy.
The Pound to Euro (GBP/EUR) exchange rate is trading at levels of 1.1128. The Pound to US Dollar (GBP/USD) exchange rate is tending in the region of 1.2930.