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Pound Sterling Holds Advantage v US Dollar, Euro as Services PMI Gives the Feel-Good Factor
The British Pound trades above the 1.33 level against the Dollar and 1.19 level against the Euro thanks to a continued run of better-than-anticipated UK economic reports.
GBP continues to outperform its two biggest rivals courtesy of solid UK data and a continued repositioning within the foreign exhange markets that sees traders continue to exit their short-Sterling positions.
Services PMI data from IHS Markit and the CIPS have confirmed the economy's largest sector expanded in the month of August, putting behind it the slump seen following the UK's vote to leave the European Union.
The data read at 52.9, well ahead of economist forecasts and market positioning that expected a reading of 50 to be delivered. This was the strongest rise in over 20 years.
Estimates shown to us by Nordea Markets confirm the UK will avoid recession as the Composite Index (construction + services + manufacturing) now reads at 53.6 for August.
According to analysts, this is consistent with GDP growth at 0.3% quarter-on-quarter for the third quarter.
"The City echoed to the sound of economic forecasts being revised, as the UK’s all-important services PMI came in ahead of expectations, matching the rebound posted by manufacturing last week. The immediate fears of an economic apocalypse have receded, with activity, job growth and confidence all holding up well," says Chris Beauchamp at IG in London.
Business have reported that the uncertainty posed by the EU vote has started to abate with the forward-looking business expectations index recovering most of the ground lost in July:
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British finance minister to meet bank bosses on Brexit gameplan
Top British bankers will tell finance minister Philip Hammond on Wednesday to give them a clearer idea of what the country's divorce from the European Union will mean for them when they hold their first meeting since the Brexit vote.
GBP taking a dive today. Why?
British Pound Down Against Euro, US Dollar as Carney is Grilled by Treasury Select Committee on August Rate Cut
Pound Sterling is seen under pressure as markets observe the appearance before the Treasury Select Committee of members of the Bank of England’s Monetary Policy Committee.
GBP is under pressure amidst a broad-based degree of profit-taking by traders who have riden Sterling's recent recovery.
There is also understandably some caution being expressed by traders as we get fresh insights into the thinking of the decision makers over at the Bank of England.
Governor Mark Carney is leading testimony to the Treasury Select Committee which is holding hearings on the August 4th Quarterly Inflation Report when the Bank’s Monetary Policy Committee (MPC) delivered an interest rate cut and announced the expansion of the dormant quantitative easing programme.
Carney appears before the Treasury Select Committee alongside Sir Jon Cunliffe, Deputy Governor, Kristin Forbes and Gertjan Vlieghe.
Where Forbes is a noted hawk Vlieghe is arguably the most dovish member of the committee, so this is an interesting combination.
Carney has told lawmakers that there was still scope to increase BoE stimulus package but Kristin Forbes countered that the Bank’s war chest isn't limitless.
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British Pound to Euro Exchange Rates: Forecasts for pre- and post-ECB Scenarios
Here are the key levels to watch on the GBP into EUR conversion ahead of the ECB’s meeting.
The Euro is firmly in control ahead of today's ECB policy meeting with the outcome likely to have some impact on the GBP/EUR pair.
Most analysts appear to be erring to the side of expecting the ECB to do nothing - an outcome which is likely to be euro-positive.
However, as we have noted here, when markets are complacent the risk of big and unexpected moves become increasingly likely.
For GBP/EUR, this means a move lower, which is in keeping with the overall medium-term look and feel of the chart, ever since the Brexit sell-off.
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