British Pound Extends Slide on Dismal PMI Data
What’s been happening?
Pound Sterling – UK Markets
The British pound suffered modest losses against both the dollar and the euro on Wednesday. The data published by the IHS Markit/CIPS showed that the service sector business activity stayed virtually unchanged in June with the headline coming in a tad above the 50 mark. “The near-stagnation of the services sector in June is one of the worst performances seen over the past decade and comes on the heels of steep declines in both manufacturing and construction,” said Chris Williamson, Chief Business Economist at the IHS Markit.
On political headlines, Boris Johnson, one of the candidates to succeed British Prime Minister Theresa May, told Reuters he doesn't think that parliament is going to want to stop Brexit. ”British lawmakers will look at their responsibilities over Brexit in a spirit of maturity and restraint," Johnson added. Meanwhile, Bank of England (BOE) Monetary Policy Committee (MPC) member and Deputy Governor Cunliffe noted that the risk of a no deal Brexit and no transition had gone up but added they prepared their financial sector.
US Dollar – US Markets
The US Dollar Index stayed relatively quiet on Wednesday and moved in a tight range in the upper half of this week’s range following the mixed macroeconomic data releases from the United States.
In its monthly report, the Austomatic Data Processing (ADP) reported that private sector employment in the U.S. in June increased by 102,000 following May’s 41,000 reading but came in below the market expectation of 140,000. Later in the day, the IHS Markit’s Services PMI arrived at 51.5 to beat the analysts’ estimate of 50.7 but the ISM’s Non-Manufacturing PMI fell to 55.1 from 56.9 in May. “An improvement in service sector growth provides little cause for cheer, as the survey data still indicate a sharp slowing in the pace of economic growth in the second quarter. The PMI data for manufacturing and services collectively point to GDP expanding at an annualised rate of 1.5%,” noted Chris Williamson, Chief Business Economist at the IHS Markit.
Meanwhile, White House economic adviser Larry Kudlow on Wednesday told reporters the next round of face-to-face talks with Chinese officials were expected to take place soon and reiterated that the U.S. would not lift existing tariffs on Chinese imports during negotiations.
Euro – European Markets
The thin trading volume on Wedneday didn’t allow the shared currency make a decisive move against its major rivals. The IHS Markit’s Services PMI reports for both the eurozone and Germany showed that the service sector remained healthy in June and continued to expand at a respectable pace. Supported by the Services PMI, the Composite PMI for the eurozone rose to 52.2 in June from 51.8 in May.
Assessing the data, “The June PMI surveys indicate that the pace of eurozone economic growth picked up at the end of the second quarter, though it would be wrong to get overly excited by the upturn. The survey is indicative of GDP merely rising by just over 0.2% in the second quarter, and a deterioration of business expectations for the year ahead to one of the lowest seen for over four years suggests the business mood remains sombre,” Chris Williamson, Chief Business Economist at the IHS Markit explained.
In the meantime, commenting on IMF Managing Director Christine Lagarde's nomination for the European Central Bank (ECB) presidency, ECB Governing Council member and Bank of France Head Villeroy de Galhau said that Lagarde would be a great president and added that she would have his full support. Nevertheless, these remarks were largely ignored by the market participants as they were not related to possible changes in the policy outlook.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK.
US: The U.S. markets will be closed due to Independence Day holiday on Thursday.
EU: The Eurostat’s retails sales data will be the only data featured in the European economic docket.