The market is continuing its pressure build up before the Bank of England convenes and Friday’s publication of US labor market data. Comments made by Atlanta Federal Reserve chief, Lockhart, offered support to the USD yesterday. He announced that the Fed is ready to raise its base rate in the near future and that he himself will be voting for a hike at the next meeting on 17th September. By these remarks, Lockhart changed the balance of power on the market and piled more pressure on the euro.
The service sector PMI figures for Eurozone countries came out today. On the whole the data isn’t bad, with the exception of Italy whose PMI was less than forecasted. The reaction to these European statistics was weak. The euro/dollar has consolidated around 1.0867 for the moment. The euro is under pressure after retail sales figures came out showing a significant fall.
The Spanish service sector PMI for July was 59.7 (forecasted: 55.5, previous: 56.1).
The Italian service sector PMI for July was 52.0 (forecasted: 53.0, previous: 53.4).
The French service sector PMI for July was 52.0 (forecasted: 52.0, previous: 52.0).
The German service sector PMI for July was 53.8 (forecasted: 53.7, previous: 54.4).
The Eurozone service sector PMI for July was 54.0 (forecasted: 53.8, previous: 54.4).
The UK service sector PMI for July was 57.4 (forecasted: 58.0, previous: 58.5).
The June retail sales index for the Eurozone stood at -0.6% MOM and 1.2% YOY (forecasted: -0.3% MOM, 1.9% YOY; previous: 0.1% MOM, 2.6% YOY).
Due to a fall in the euro/pound, the pound dollar rose to 1.5634. The UK business activity index in the service sector ended up a little worse than expected, but this didn’t stop the pound sterling hurtling upwards and away from its Asian minimum by 100 points.
I don’t share the optimism that pound buyers have at the moment with the Bank of England due to convene tomorrow. The pound/dollar has been stuck in a sideways trend for a few weeks now, so any sharp fluctuations tomorrow shouldn’t come as a surprise.
Market participants are waiting for the ADP index and the ISM index for the US service sector. It’s expected that the ADP will indicate a July employment creation growth in the private sector of around 210,000 - 215,000. If the data exceeds expectations by 15-20 thousand, the dollar is bound to strengthen once more. A rise in the service sector ISM is also expected. I think that the market is swinging at the moment so that participants can get in to favorable positions before the news comes out. The pound is now repeating its movements from 29th July.