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European Session – Sterling rallies on UK Services PMI, euro rally fades

Posted on February 4, 2015 by the XM Investment Research Desk at 3:18 pm GMT

gbp-50-british-pounds-2Sterling was the best performing major today, as it was boosted by data showing that the UK services sector expanded faster-than-expected in January. The Services Purchasing Managers’ Index (PMI) came in at 57.2, up from December’s 55.8 and topped forecasts for a reading of 56.6.

The pound extended yesterday’s gains versus the dollar to peak at 1.5249, beating yesterday’s high of 1.5197. Focus now turns to the Bank of England policy meeting tomorrow, although no change is expected in the central bank’s current monetary policy.

The euro’s recent recovery which was driven by optimism of a new debt deal by Greece, appears to have run out of steam. After peaking at 1.1532 against the dollar on Tuesday, the single currency eased back down to approach the 1.1400 level today.

The market shrugged off encouraging final Eurozone Services PMI data which rose to 52.7 from a prior reading of 52.3. Also good retail sales figures were ignored – which increased 0.3% month-on-month, despite expectations for a 0.1% drop. The focus remains on developments with regards to Greece.

The recent boost to the euro which was also helped by investors trimming long dollar positions and booking profits yesterday, may be coming to an end and the greenback’s outlook remains strong given expectations of monetary policy divergence between the US and the Eurozone.

There will be important US data in the coming days and if they are strong, the dollar will remain bid. Today’s US ADP private payrolls numbers disappointed though, as they came in at 213,000 jobs in January, falling short of the 225,000 expected. However, December’s payrolls were revised up to 253,000 from the previously reported 241,000. The main focus will be on Friday’s all-important nonfarm payrolls numbers.

The dollar nevertheless rose against the yen to 117.64 before easing back to around 117.50 as the greenback rose against most majors today on the back of a rising US dollar index.

The Australian dollar is flat on the day so far, reversing gains made early today after rising on news that its main trading partner China, announced a cut in the nation’s banks’ required cash reserves, adding more liquidity to spur growth in the world’s second-biggest economy. After hitting a high of 0.7848, the aussie eased back down to 0.7760. Australian retail sales data tomorrow come into focus.



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