A tale of two halves for the pound.

6 February, 2014

Rob Bastin

Wednesday’s trading was a tale of two halves for the pound. Morning PMI Services data for the UK was surprisingly short of expectation posting a figure of 58.3, down from 58.8 last month. Despite the services sector being one of the strongest for the UK in recent month, this shortfall combined with Monday’s manufacturing PMI drop has seen the pound correct itself to its lowest buying levels this year against both the Euro and US Dollar. The Euro-zone was also subject to some weaker PMI figures and very poor Retails Sales figures that were over 2% shy of analyst’s forecasts. It was however sterling’s fresh negative sentiment that continues to drive the exchange rates as traders sell off from the recent year highs achieved in January. Despite the morning’s lows the pound was able to regain some ground against the Euro after hitting key support levels, and against the US Dollar as their latest unemployment change dropped sharply from the previous month. The day ahead is all about GBP/EUR and whether the slide in rates will continue or whether the pound may be able to start pushing back up towards the recent peaks that are fast disappearing. The catalyst for these movements will of course be the two respective interest decisions at 12:00pm for the BoE and at 12:45pm for the ECB. This month could be very interesting as both decision have the potential for weakening their currency. Will Mark Carney provide any further forward guidance on interest rate hikes as he has hinted in recent speeches? Unemployment may be nearing 7% but the BoE have been quick to dampen any expectations of imminent rate changes. Will the ECB cut rates even further? Speculation is increasing that a 0.15% cut to 0.1% base may be considered amongst other possibilities as Inflation levels continue to drop further below the ECB’s target rate of 2%. Today will no doubt be pivotal for the direction of exchange rates over the coming weeks so make sure you keep in close contact with your account manager to stay informed on how today’s announcements could affect the cost of your up coming transfer.