UK Service Sector Activity Expands
The just released survey figures showed that services activity in the UK expanded at better than forecasted pace in June, rebounding from a fall in services PMI in May. The rise has added to signs that the British economy is growing at a healthy pace, recovering from the weakness witnessed earlier this year.
The services PMIs from the Euro zone and its peripheral economies earlier today have brightened the growth outlook across the Euro region and indicate that the Greek debt crisis has so far had little discernible impact on the economy. Meanwhile, Greece heads towards a crucial weekend referendum on recent creditor proposals that could decide the nation’s future in the Euro zone.
Pound Sterling – UK Markets
The Pound has trimmed part of its losses against the Euro after the just released survey data in the UK showed that services activity picked up pace last month. This follows a sharp drop in PMI in May. The better than expected June services PMI and an improvement in construction activity earlier suggest that the UK economy is recovering at a healthy pace compared to the slump witnessed early this year. These improvements, if sustained, are likely to be a key factor for the Bank of England to contemplate on when to raise interest rates from the current record low of 0.5%. Going forward, next week traders will focus on industrial and manufacturing production numbers, NIESR’s estimate of GDP growth and cues from the BoE’s policy meeting.
The Pound–US Dollar currency pair gained traction yesterday, following broad based weakness in the greenback in the wake of softer than expected US labour market data. Sterling was supported after construction output in the UK rose to a four month high in June. Previously, the seasonally adjusted house prices in the UK tracked by the Nationwide showed a contraction in June.
US Dollar – US Markets
The greenback came under pressure yesterday after the jobs report in the US painted a mixed picture, with job additions coming in a touch softer than expected for June. On the job creation front, non-agricultural businesses added fewer positions than anticipated last month, however the figures still reflect a healthy labour market. Additionally, the number of first time unemployment claims unexpectedly jumped last week. Markets were also disappointed by a flat reading of average hourly earnings for June. Wage growth is an important indicator for the US Fed and a stagnant reading could change expectations about a rise in rates in September. Meanwhile, the jobless rate in the US for June dropped to its lowest mark in seven years, largely due to a sharp decline in labour force participation.
Trading in the US Dollar is likely to remain subdued today on account of the Independence Day holiday in the nation. Meanwhile, uncertainty surrounding Greece ahead of the weekend referendum could trigger volatility in the leading currency pairs.
Euro – European Markets
The Euro is trading on a stronger footing against the US Dollar after Euro zone’s final services PMI earlier today confirmed growth in service sector activity for June, led by increased demand on the back of robust wage growth. Also, the composite PMI climbed higher than market expectations for June, suggesting that overall business activity in the Euro region has improved. Services PMI rose across the key economies of Germany, France and Italy, albeit less than anticipated for Germany, but indicating that the improvement was broad based. However service sector activity eased in June for Spain. Later in the day, Euro zone’s retail sales figures for May will provide additional cues on how consumers reacted to higher fuel prices.
Going forward, investors are expected to tread cautiously heading into Sunday’s referendum in Greece on European bailout proposals. Latest opinion polls indicate that the referendum to decide Greece’s future in the Euro bloc is going to be a close call.
Other Currencies – Highlights
The Japanese Yen is currently trading in a tight range against the US Dollar, with the currency pair hovering close to the 123.00 mark. The greenback came under pressure yesterday following the release of mixed US jobs data. However, it has recovered from its losses against the Japanese Yen amid low trading volumes as US markets remain closed today on account of Independent Day holiday.
Earlier today, a survey data showed that Japan’s service sector activity expanded at its fastest pace in nine months for June, indicating that domestic demand has improved in the world’s third largest economy. The improvement in business activity came alongside a marked increase in new orders at service sector firms for the same month. Recent economic releases indicate an improvement in business sentiment and increased spending among households and firms, signalling a broader pickup in economic growth in the second quarter. With no further domestic releases today, market participants will keep a watch on the nation’s coincident and leading economic indices, scheduled early next week, for direction.