Sterling woes continue

The month of May has continued very much as it finished April for the Pound with more weaker data and continued pressure on exchange rates. After Manufacturing and Construction PMI produced mixed figures in the last few days, yesterday was the even more important Services sector that makes up the biggest contribution to the UK’s overall GDP growth figure. Analysts had been expecting a good improvement on March’s figure of 51.7 with a consensus of 53.5. Unfortunately, actual figures came in lower at just 52.8 and the pound immediately dropped further across the board, continuing its current negative trend. GBP/EUR is now at a 6 week low and GBP/USD has now dropped 8 cents in just 2 weeks.

It is fair to assess that sentiment towards the pound has flipped on its head in the last 2 weeks with a string of weaker data combined with increased uncertainty over Brexit negotiations and the UK political situation. Markets are now heavily readjusting forecasts for future rate changes from the BoE and all of this is making Sterling a very unattractive investment in the short term. The pound did have a slightly more stable day against the Euro which also suffered yesterday from weaker eco-stats with Inflation figures dropping more than expected to 1.2% on the year.

Today the UK gets a rest from data with the focus switching across the pond for the big Non-farm Payrolls release this afternoon at 1:30 pm. The US Dollar is very much back in the driving sit, recently reversing its 1-year long trend of dropping against the Euro and the Pound. With the Federal Reserve ready to hike interest rates a further 2-3 times this year it is difficult to see this change of fortunes for the greenback reversing again anytime soon with most analysts expecting another hike as early as June. This afternoon’s unemployment data will be key for the timing of the next rate hike so expect a usual volatile afternoon. Elsewhere today we also have Euro-zone Retail Sales announced at 10 am although markets will likely await the afternoon data before seeing any bigger changes in rates.