Pound resumes slide in spite of retail sales jump

Philip McHugh February 21st 2020 - 2 minute read

Will UK Services PMI boost the pound?

January’s sharp monthly rebound in UK retail sales was not enough to keep the pound from coming under fresh pressure yesterday.

Although sales excluding auto fuel surged 1.6% on the month the mood towards the pound still soured, with investors doubtful that this uptick in consumer spending will endure.

However, a rallying point could be in store for GBP exchange rates this morning if the UK services PMI remains firmly in expansion territory.

As long as the service sector demonstrates solid growth in February the risk of a weaker first quarter gross domestic product reading is likely to diminish, shoring up the pound.
Weaker Eurozone manufacturing PMI set to drag euro lower

The release of the European Central Bank’s (ECB) January meeting minutes helped the euro to push higher across the board thanks to their relatively upbeat tone.

Even so, as the meeting occurred before the global implications of the Covid-19 outbreak become clear policymakers are likely to have seen a change in sentiment in recent weeks.

Worries over the health of the Eurozone economy could pick up once again if February’s manufacturing index sinks deeper into a state of contraction.

Unless the manufacturing sector can show signs of recovery, however small, the euro looks set to trend lower across the board.
Further signs of manufacturing sector strength to boost US dollar

Demand for the US dollar picked up sharply thanks to a surprise surge in the latest Philadelphia Fed manufacturing index.

As the index leapt from 17 to 36.7 on the month this encouraged a greater sense of confidence in the outlook of the wider US manufacturing sector.

Some of the bullishness of USD exchange rates could fade this afternoon, though, if February’s flash manufacturing PMI shows any signs of slowing.

While the PMI is not given as much weigh as the similar ISM manufacturing any disappointment from the data may dent the US dollar.   

Written by
Philip McHugh

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