Pound nosedives following alarming slump in UK service sector growth

The pound plummeted on Tuesday as the latest UK PMIs printed well below expectations.

Sterling is trading without any strong direction this morning, while GBP/EUR has climbed to €1.1738 GBP/USD is flat at $1.2549. GBP/CAD and GBP/AUD are holding steady at C$1.6103 and AU$1.7671, respectively, while GBP/NZD has fallen to NZ$1.9313.

Looking ahead, will the publication of the minutes from the Federal Open Market Committee’s (FOMC) May policy meeting help to bolster the US dollar today?.

What’s been happening?

The pound was met by significant selling pressure yesterday as GBP investors were left disappointed by the UK’s latest PMI releases.

The Services PMI made for particularly worrying reading as it plunged from 58.9 to a 15-month low of 51.8 this month.

The alarming slump in service sector growth weighed heavily on Sterling as it revived fears the UK could be headed for a recession and weakened Bank of England (BoE) rate hike bets.

The euro, meanwhile, was largely able to shrug off the Eurozone’s slightly weaker-than-expected PMI releases.

This was helped by comments from European Central Bank (ECB) policymaker Martins Kazaks, in which he suggested the bank should not rule out the possibility of a 50bps interest rate hike.

At the same time, the US dollar was left on the back foot through Tuesday’s European session as the latest US PMIs also disappointed.

What’s coming up?

Kicking off today’s session was the publication of Germany’s latest GDP figures.

These confirmed Germany’s economy expanded by 0.2% in the first three months of 2022 and could help to underpin demand for the euro this morning.

The focus for USD investors today will be on the publication of the minutes from the Fed’s May policy meeting, amidst hopes they may shed more light on the US central bank’s future policy plans.

In the meantime, the publication of the latest US durable goods orders release could act as a headwind for the ‘greenback’ if order growth slowed in April as expected.

Finally, in the absence of any notable UK economic releases the direction of the pound may be dictated by UK political developments amid the impending publication of the Sue Grey ‘partygate’ report.