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US dollar jumps following upbeat services PMI

currency-newsUS dollar jumps following upbeat services PMI
The US dollar surged higher yesterday after strong American economic data boosted Federal Reserve rate rise bets.

The pound is mixed this morning, with GBP/EUR wavering around €1.1949. GBP/USD and GBP/CAD are both heading up, hitting $1.2170 and C$1.5628, respectively. Meanwhile, GBP/AUD and GBP/NZD are fairly flat at A$1.7459 and N$1.9305.

The Bank of England (BoE) decision is in the spotlight today. Could dovish forward guidance undermine the pound, or will a 0.5% hike see it climb?


What’s been happening?

After a rather muted morning, the US dollar then surged higher in the afternoon following unexpectedly strong US data. The ISM non-manufacturing PMI rose from 55.3 to 56.7, rather than falling to 53.5. Meanwhile, factory orders grew by 2%, beating forecasts of a 1.1% rise.

This in turn boosted bets for more aggressive action from the Federal Reserve, adding to recent comments from Fed officials suggesting that the US central bank will continue tightening policy.

The euro suffered from its negative correlation to the strengthening US dollar. EUR fell in the afternoon following a morning of wobbly trade amid mixed eurozone economic data.

Meanwhile, the pound declined as concerns about the UK economy worried GBP investors.

The UK’s final services PMI revealed a larger-than-expected slowdown in growth, while the latest quarterly economic outlook from the National Institute of Economic and Social Research (NIESR) painted a rather bleak picture.


What’s coming up?

Today’s focus is on the Bank of England interest rate decision. While markets expect a 50-bp rate rise, the bank could opt for a smaller increase. A 0.5% hike could boost GBP while a 0.25% hike could see it slip.

Markets will also be looking at the bank’s forward guidance. There’s a chance that even if the bank votes for a steeper rate increase it may signal a slower pace of tightening in the future. If so, the pound could head lower.

Risk sentiment could determine the US dollar’s movement today. Later in the evening a speech from Federal Reserve policymaker Loretta Mester may impact USD.

As for the euro, we may see some movement as markets digest the European Central Bank’s (ECB) latest economic bulletin.
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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