Pound strengthens after strongest Services PMI since December

United States Dollar:

Sterling got a boost yesterday after the monthly UK Services PMI beat expectations with a reading for July of 59.1, its highest reading of the year so far. With markets expecting a reading of around 58.1, the release saw cable rise from 1.6850 to 1.6888 and GBP/EUR break through 1.26. Given that some economists are expecting a slowdown in the UK economy in the second half of the year, the report would have pleased holders of the pound. The report’s authors expect Q3 growth to match Q1 and Q2 at 0.8%. Later in the day from the States, we had the monthly ISM Non-Manufacturing PMI which beat forecast by some distance. A figure of 56.6 was expected, but on release it printed 58.7, its highest reading since March 2011. At the same time monthly US Factory Orders also beat expectations to show 1.1% expansion. Cable dropped back to 1.6846 on the back of this. It currently trades at 1.6860. This morning, focus will be on the UK’s Manufacturing Production release, and pounds bulls are hoping that last month’s abysmal reading was just a blip.

Euro:

Yesterday saw eurozone Retail Sales for June come out in line with expectations, showing 0.4% growth. The monthly Spanish Services PMI came out better than forecast, however, the Italian Services PMI undershot expectations. This morning has seen a much worse than expected German Factory Orders reading for June, showing a -3.2% fall, when an uptick of 0.5% was expected. Geopolitical tensions in the Ukraine have affected German business confidence recently, so this may be to blame for the poor release. Later today sees the first estimate for Italian Q2 GDP, with markets expecting 0.1% growth for the quarter. Attention will then turn to tomorrow’s euro rate decision and the accompanying press conference. No change in rates is expected – however given deflationary pressures throughout the eurozone, the markets are expecting some dovish comments from ECB President Mario Draghi. EUR/USD currently trades at 1.3372, while GBP/EUR trades at 1.2607.

Aussie and Kiwi Dollars:

New Zealand saw its unemployment level drop to 5.6% from 5.9%, however, the quarterly Employment Change release came out worse than expected, showing only a 0.4% increase. NZD/USD currently trades at .8447, having traded as high as .8530 earlier in the week. There’s been little news from Australia in the past 24 hours. Holders of the Aussie will be looking to tomorrow’s quarterly RBA Monetary Policy Statement for guidance on the timing of potential rate rises. AUD/USD currently trades at .9318, GBP/AUD is at 1.8090 and GBP/NZD trades at 1.9959.

Data releases for the next 24 hours:

AUD: Employment Change, Unemployment Rate

EUR: Prelim Italian GDP q/q

GBP: Manufacturing Production m/m

NZD: No data

USD: Trade Balance