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Pound strengthens on easing fuel shortages

currency-newsPound strengthens on easing fuel shortages
The pound pushed higher again yesterday as the fuel shortages appeared to ease and growth in the service sector unexpectedly rose in September.

However, Sterling’s run of gains is slowing this morning, with GBP/EUR slipping to €1.1738 and GBP/USD weakening at $1.3565. However, GBP/CAD is steady at CA$1.7148, while GBP/AUD and GBP/NZD strengthen at AU$1.8762 and NZ$1.9697, respectively.

Coming up, will souring market sentiment and rising US Treasury yields prompt a rebound in the US dollar?
 

What’s been happening?

The pound extended its run of gains through yesterday’s session as the UK petrol shortage continued improving, particularly in the hardest hit region in London and south east England. 

GBP also received support after the finalised UK services PMI for September unexpectedly beat forecasts and came in higher at 55.4.

Growth in the sector expanded, up on August’s reading of 55, and pointed to a recovery in services activity.

Meanwhile, the US dollar struggled in the first part of Tuesday’s European session, before strengthening as market mood soured on the US debt ceiling situation, boosting safe-haven demand while rising US Treasury yields drove USD higher.

The US dollar also made gains as the September ISM non-manufacturing PMI exceeded forecasts and was up on August’s figures.

While expansion in the service sector supported the US dollar, the data also revealed increasing price pressures that could support the Federal Reserve’s case to taper its bond-buying purchases.

At the same time, the stronger US dollar drove the euro lower due to the negative correlation in the pairing.

EUR exchange rates also came under pressure from the Eurozone services PMI for September which showed the slowest growth in the sector in four months.
 

What’s coming up?

Kicking off today’s session were downbeat figures for German factory orders in August. Orders unexpectedly plunged -7.7%, much worse than the -2.1% expected, which could weigh on EUR sentiment today.

However, August’s Eurozone retail sales data could offset any euro losses as sales are forecast to return to growth of 0.8%, up on July’s -2.3% contraction.

Meanwhile, the US dollar could continue to rebound today as Treasury yields hit their highest levels since July and ADP employment data is released.  

The data is expected to show rising employment ahead of non farm payrolls on Friday, potentially giving the Fed more reasons to tighten monetary policy.

In the absence of notable UK data, the pound will likely remain sensitive to developments in the UK fuel shortages situation and rising energy prices that could threaten the country’s economic outlook.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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