What’s been happening?

Pound Sterling – UK Markets 

The Pound advanced against other major currencies such as the US Dollar and Euro yesterday amid a better than expected June IHS Markit services PMI report. The PMI services index strengthened to 55.1 from 54.0 in May and above the consensus forecast of 54.0. UK services companies saw business activity rise at the fastest pace for eight months in June as the effect of earlier winter-slump related disruption wore off. New business strengthened at the fastest pace for 13 months. Chris Williamson, Chief Economist at Markit, noted: “The survey data indicate that the economy likely grew by 0.4% in the second quarter, up from 0.2% in the opening quarter of 2018. The sharp rise in business costs, linked to surging oil prices and the need to offer higher wages, suggests inflation will also pick up again from its current rate of 2.4%.” The latest PMI data should support the case for an August rate hike, particularly given increased cost pressures.

UK yields edged higher yesterday which supported Sterling, however, the momentum didn’t last, as markets now look to tomorrow’s UK Cabinet meeting as the government looks to come up with a unified plan on Brexit trade policies. 

US Dollar – US Markets

Due to the Independence Day holiday, US markets were closed yesterday, therefore no fresh data was released. Markets will be monitoring developments over the next couple of days with the ADP employment, Markit Services PMI index and ISM non-manufacturing readings coming out. The Federal Reserve will also be releasing minutes from June’s policy meeting later this evening, which will provide analysts with a good insight into future interest rate hike predictions. 

Euro – European Markets

The final Germany IHS Markit services PMI picked up to 54.5 in June from 52.1 in May, which was a 20-month low. The latest figure was also higher than a flash reading of 53.9, but still below a near-seven-year high in January. Markit put the upswing down to stronger new orders supported by higher demand. To meet the higher demand, service companies hired new workers at the highest rate since the start of the year. 

The final June overall Eurozone PMI services index was also revised higher to a 4-month high of 55.2 from the flash reading of 55.0, offering encouragement to the European Central Bank to tighten the policy, however, optimism among purchasing managers was at its lowest ebb since late 2016, the same survey found. IHS Markit’s final composite PMI index for the Eurozone, seen as a good overall indicator of growth, rose to 54.9 in June from May’s 54.1, comfortably above the 50-mark separating growth from contraction. Overall, the Euro consolidated just below 1.1650 against the Dollar into the European close and gained ground in early Europe today with a move to near 1.1700. 

What’s coming up? 

UK: UK Markets will be focusing on continuing political developments ahead of a key cabinet meeting this Friday, where the government will look to find a unified plan on Brexit trade policies. 

US: Markets will see plenty of fresh data out of the US today, following a no-data day yesterday. Employment data will be out later this afternoon, followed by IHS Markit Services and composite PMI readings and FOMC minutes. 

EU: The rest of the week looks quiet for Eurozone, the European Central Bank’s Yves Mersch will be speaking tomorrow, where a further insight into the ECB’s stance on the monetary policy is expected to be presented.