Services Surprises

The euro gains after upbeat PMI data while sterling is caught in a tug-of-war between poor services data and diminishing risks of a no-deal Brexit.

Previous Day's Market Highlights

The pound had a mixed day on Wednesday with several forces competing to dictate sterling’s next direction. To the downside, services PMI figures slid to 48.9, the lowest level in two and a half years and firmly inside contractionary territory. Brexit-related uncertainty significantly constrained demand last month, raising the risk of UK GDP growth stagnating in the first quarter. More positive news could be found after Parliament passed a bill, albeit by a narrow margin, to legally require the Prime Minister to request an extension to the Article 50 period to prevent a no-deal Brexit. Though the EU would have to agree any such extension, this has further diminished the risks of a ‘cliff-edge’ scenario. Also on Brexit, the Prime Minister’s meeting with opposition Leader Corbyn seemed to yield little though ended on a positive note with talks being described as “constructive”. Further talks will take place today. Over the course of the day, the pound gained 0.4% against the dollar, largely due to the greenback weakening, and closed unchanged against the euro. 

Elsewhere, the euro reversed its recent trend and gained ground across the board with support stemming from an upbeat set of PMI figures. Data showed the services industry expanding at a solid pace, at an above-forecast level of 53.3, while figures for Germany, France and Italy also beat expectations, somewhat easing fears of an economic slowdown caused by the poor manufacturing data on Monday. The single currency gained 0.3% over the course of the day. In contrast the dollar fell, losing around 0.25%, after a couple of below-forecast data releases. Firstly, ADP employment change figures showed just 129,000 jobs added to the economy last month, firmly below expectations and tempering expectations for Friday’s official labour market report. ISM non-manufacturing PMI data was also worse than expected, falling to its lowest level since August 2017 at 56.1, though still at a strong rate of expansion. Meanwhile, antipodeans benefitted from an improvement in risk sentiment, with both the Aussie and Kiwi dollars gaining more than 0.5%, while the Canadian dollar traded largely unchanged over the day. 

In other markets, equities recorded gains on both sides of the Atlantic. The pan-European Stoxx 600 gained 0.9%, while gains were more modest in the US, with the benchmark S&P 500 adding 0.15%. Finally, oil prices fell after an unexpected jump in US stockpiles exerted downward pressure on prices. Both Brent and WTI lost around 0.4%. 

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1730 1.1803 1.1463 2.88%
GBP/USD 1.3185 1.3381 1.2939 3.30%
EUR/USD 1.1240 1.1448 1.1176 2.38%
GBP/AUD 1.8527 1.8851 1.8271 3.08%
GBP/NZD 1.9420 1.9512 1.8960 2.83%
GBP/CAD 1.7608 1.7795 1.7327 2.63%

Today's Market Highlights

Today’s main data highlight will be the release of minutes from the ECB’s March policy meeting, at which a fresh round of stimulus was announced including new cheap, long-term loans to banks in addition to downwardly revised economic forecasts and a dovish revision to forward guidance. Markets will examine the minutes for the reasoning behind such dovish policy shifts, in addition to attempting to gauge the ECB’s level of concern over the softening of economic activity across the eurozone. Investors will also be looking for any hints as to the ECB’s plans for further policy action, especially if data were to soften further. 

Elsewhere, nothing in the way of data is due from the UK, though the pound will, as ever, be driven by the ongoing stream of Brexit-related headlines. Markets will keep one eye on today’s meeting between PM May and opposition leader Corbyn for any signs of a deal being agreed. Across the pond, data is also limited, with only the weekly jobless claims number of any note. The dollar will likely set a cautious tone today, ahead of tomorrow’s labour market data. Other highlights include PMI figures from Canada as well as the overnight release of household spending and earnings data from Japan. 

Finally, it is relatively quiet on the central bank front as well, with just the Fed’s Mester and Williams due to speak, both typically have a hawkish policy stance, therefore markets are likely to focus on any comments surrounding the Fed’s dovish policy shift. 

Today's Economic Calendar

Time Currency Release Consensus Previous
12:30 EUR ECB Meeting Minutes (Mar)
13:30 USD Initial Jobless Claims 216k 211k
15:00 CAD Ivey PMI 51.1 50.6