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The pound held losses against the euro and US dollar on Tuesday, with GBP/EUR fluctuating between €1.1700 and €1.1643 and GBP/USD ending the day at $1.2425.
Although demand for higher-risk currencies faltered, the pound also dipped to a low of AU$1.6402 against the Australian dollar. Sterling did manage to hold its own against the New Zealand dollar however (despite an increase in dairy prices) with GBP/NZD reaching a high of NZ$1.7862.
What’s been happening?
Although yesterday’s UK construction PMI showed an unexpected dip in output in March, the report had little real impact on the pound.
As Monday’s manufacturing measure also fell short, the release increased concerns that today’s much more influential services PMI will complete a hat trick of less-than-impressive stats and indicate that the UK economy faltered at the end of the first quarter. However, general anxieties about the global economic outlook were the main cause of weakness in GBP exchange rates.
There are a number of factors reducing risk appetite at the moment, including the French election, the suspected terrorist attack in St Petersburg and concerns about the direction this week’s meeting between US President Donald Trump and Chinese President Xi Jinping could take. These anxieties served to boost the safe-haven US dollar but limit demand for the pound.
GBP/EUR losses were also the result of the Eurozone publishing more upbeat data, with the region’s latest retail sales report showing a stronger-than-expected increase in consumer spending.
What’s coming up?
The UK’s services PMI is likely to be the main cause of pound movement in the hours ahead, with a positive result having the potential to send Sterling back to its weekly highs.
As it stands, economists have forecast a modest acceleration in growth from 53.3 to 53.5.
However, if the services measure falls (like its manufacturing and construction equivalents) the pound could keep sliding.
US data may also inspire GBP/USD movement today, with the nation set to publish the ADP employment change number and services PMI.
The labour data is forecast to show a deceleration in the number of positions added in March. As any softening in employment is likely to prevent the Federal Reserve from revising its current plans to increase interest rates just twice more in 2017, the US dollar could fall if the report meets expectations.
