FX round-up: Pound slips on weak services data and as Downing St. rules out customs union
By Alexander Bueso
Date: Monday 05 Feb 2018
(ShareCast News) - Sterling gave back yet more of its recent gains against the greenback at the start of the week, as a key gauge of service sector activity in Britain printed below forecasts, lagging behind the improvement seen in comparable gauges for the US and euro area.
IHS Markit's services sector purchasing managers' index printed at 53.0 for January, which was down from a reading of 54.2 for December (consensus: 54.1) and its weakest since 16 months back.
Across the Channel on the other hand, the same survey compiler's 'composite' PMI for Eurozone manufacturing and services in January was revised higher from a preliminary reading of 58.6 to 58.8 (December: 58.1).
That was the strongest reading since June 2006.
In parallel, the ISM institute's own US non-manufacturing PMI jumped from 56.0 to 59.9, also reaching its best level in over a decade.
Unsurprisingly, as of 1951 GMT cable was trading 0.91% lower to 1.3994 with the pound also on the back foot against the single currency, shedding 0.41% to 1.1287.
"British service sector is missing out on stronger growth seen elsewhere across Europe as Brexit uncertainty appears to take its toll, likely providing support to the most dovish members of the MPC this week," commented economists at Barclays Research.
Acting as a backdrop, and even as longer-term US Treasury note yields fell back, dragged down by a wider wave of risk aversion in markets, the Dow Jones Industrials was trading over 1,000 points lower at 24,430.31.
Earlier on Monday, yields on the benchmark 10-year US Treasury note had initially added to their recent gains on the back of the latest PMI data from ISM.
At the weekend, ex-Federal Reserve chair Janet Yellen had cautioned that price-to-earnings multiple on stocks were at the "high" end of their historical range, although in remarks to broadcaster CBS she explicitly demured from labelling them "too high".
Nonetheless, she was preceded on 31 January by another ex-Fed chair, Alan Greenspan, who said both stocks and bonds were in a bubble and that not enough attention was being given to the jump in America's [federal government] debt to GDP ratio.
To take note of, traders in the pound were also reacting to news that Number 10 had also apparently ruled out membership of any customs union with the EU after Brexit.
Despite the very sharp losses in stocks, dollar/yen was down by just 0.32% to 109.754.
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