Pound (GBP) Exchange Rate Trading Mixed after UK Services Data

The Pound remains trading at comparatively elevated levels against several of its peers, but has come away from recent highs as a result of mixed UK reports. While the nation’s manufacturing and construction purchasing managers’ indexes (published on Monday and Tuesday respectively) showed stronger-than-anticipated growth, the services sector measure fell slightly short of forecasts, printing at 56.7 in February instead of the 57.5 expected. Wednesday also saw the release of the British Retail Consortium’s (BRC) Shop Price Index, which dipped from -1.3% to -1.7% instead of advancing to -1.2%.

The services data had many positives to it however, including rising employment and new business levels. Markit economist Chris Williamson was fairly optimistic in his assessment of the situation; ‘Although the rate of expansion slowed in the vast services economy, growth has picked up in both manufacturing and construction. The three PMI surveys collectively indicated a slight acceleration in economic growth for a second successive month in February as a result, consistent with GDP growth picking up to 0.6% in the first quarter. Employment growth across the three sectors has also accelerated so far this year, to a near-record rate, and there are welcome signs that the labour market tightening is feeding through to higher wages.’ He also implied that the BoE may start considering increasing interest rates before the end of the year.

Despite this, the Pound still trimmed gains against the Euro and extended losses against the US Dollar, Australian Dollar and New Zealand Dollar after the report was published. Concerns relating to the upcoming UK general election, and a potential Brexit, as well as speculation that the Bank of England will make no moves to tighten fiscal policy before 2016 are keeping Sterling under a little pressure. Tomorrow’s Bank of England interest rate decision is unlikely to have much of an impact on the direction taken by the Pound as the week progresses. Economists are anticipating no alterations being made to fiscal policy given the current inflationary climate. The UK’s New Car Registrations report (due out on Thursday) is of low volatility, but Friday’s BoE/GfK inflation expectation data could be responsible for a flurry of Sterling movement before the weekend.