Sterling received a bit of a lift yesterday after the UK PMI services index strengthened slightly to 50.0; slightly above consensus forecasts and at the flat line figure showing no expansion nor contraction for October. The service sector is the largest sector in the UK and as a result is always monitored from a growth perspective. Although, taking a closer look at the breakdown, the underlying data was not entirely encouraging. New business continued to decline for the month with significant losses in export orders, in addition to a significant decline in both order backlogs and employment on the month as political uncertainty continued to sap confidence. On the day, Sterling traded higher versus the Euro although lost ground against the US Dollar as traders priced out any further short-term cuts from the Federal Reserve.
Looking to the day ahead, the campaign season for the upcoming general election will officially begin. PM Johnson will meet the Queen at Buckingham Palace later today after Parliament was dissolved in the early hours this morning.
Eurozone Services PMI
In Europe, the October Eurozone Services PMI and the readings for France and Germany are due and expected to be revised slightly higher as well as Eurozone retail sales which are also set for release. The market is watching European data following the restarting quantitative easing.
US Services PMI declines
In the US, the same services figure was released and showed that the index declined to 50.6 from the flash reading of 51.0 and the weakest reading since February 2016. More concerning was that the employment component declined at the fastest pace for close to 10 years. In contrast the ISM non-manufacturing index increased to 54.7 for October from 52.6 and above consensus forecasts; with employment increasing. In the US, the ISM non-manufacturing carries more weight than the PMI services and therefore strengthened the Greenback. Adding to this were comments from Atlanta Fed President Barkin, he stated that now was a good time to take a pause in interest rate cuts and assess how the economy evolves.
Today, FOMC member Evans and Williams are due to speak at separate engagements, the market will be keen to hear their rhetoric surrounding interest rate policy.
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