Pound rallies as UK service sector shows impressive growth

08-11-2017

AFTER plummeting by around two cents against the euro on Thursday following the Bank of England’s (BoE) latest rate decision, the pound is beginning to claw its way back up this morning on the back of some upbeat economic data.

GBP/EUR is currently at around €1.122, up around 0.2 per cent from this morning starting levels but still a staggering 1.6 per cent down from yesterday’s best levels.

Sterling sentiment took a heavy blow in the wake of the BoE’s latest policy meeting yesterday as policy makers signalled that yesterday’s rate hike was likely to be a one-off.

With most investors having already priced in the Monetary Policy Committee’s (MPC) decision to raise interest rates at their November meeting, the pound sank as hopes of a start to a new tightening cycle were shattered.

In speaking to the BBC yesterday BoE governor Mark Carney suggested that the UK would require "about two more interest rate increases over the next three years" as part of the bank’s attempts to keep inflation at around 2 per cent.

However Sterling is beginning to mount a slight recovery this morning as the UK’s services PMI beat forecasts in October.

According to data published by IHS Markit, activity in the service sector saw a notable jump last month, with the index climbing from 53.6 to 55.6, beating expectations it would slip to 53.3 and reaching a six-month high.

The uptick in service sector activity also follows some upbeat manufacturing and construction PMIs earlier in the week, leading analysts to suggest that the UK will have got off to a strong start in the fourth quarter.

Chris Williamson, Chief Business Economist at IHS Markit, said; “October saw business activity across services, manufacturing and construction grow at its fastest rate for six months. The data point to the economy growing at a quarterly rate of 0.5%, representing an encouragingly solid start to the fourth quarter.”

Meanwhile the euro is a little subdued this morning as investors look to the US jobs report later this afternoon, with the currency’s position as the most traded against the US dollar causing investors to shy away from the euro ahead of what is expected to be a strong rebound in US non-farm payrolls.

Looking ahead to next week the GBP/EUR exchange rate may be able to continue its recovery on Monday as Germany releases its latest factory order figures, with economists forecasting that orders will have fallen sharply in September.

However with a lack of notable UK economic data releases until the latter half of the session next week the pound may struggle to take advantage of any early weakness in the euro.

Source: http://www.express.co.uk/finance/city/875028/pound-to-euro-exchange-rate-uk-service-sector-growth-bank-of-england-interest-rate