GBP/USD tumbles to $1.22 following disappointing UK PMI

The pound fell sharply on Tuesday as the latest UK PMIs reported UK business activity shrank more than expected this month.

Sterling is broadly flat so far this morning, with GBP/EUR steady €1.1321 and GBP/USD rangebound at $1.2327. GBP/CAD and GBP/NZD are stable at $1.6474 and NZ$1.9000, respectively, while GBP/AUD plunges to AU$1.7351.

Turning to today’s session will an improvement in German business confidence help to underpin the euro?

What’s been happening?

The pound slumped against the majority of its peers yesterday as GBP investors were dismayed by the UK’s latest PMI figures.

Activity in the UK’s private sector was shown to have slowed to a two-year low this month, following a larger-than-expected contraction in service sector growth.

The lacklustre figures stoked UK recession fears and lead to investors shunning Sterling.

In contrast, the Eurozone’s own PMI figures beat expectations and reported the bloc’s private sector returned to growth in January for the first time in seven weeks, providing a lift for the euro.

Meanwhile, the US dollar was bolstered by a cautious market mood, which underpinned demand for the safe-haven currency.

However stronger-than-expected US PMI releases lead the ‘greenback’ to relinquish some of these gains later in the afternoon as it cheered market sentiment.

What’s coming up?

Looking ahead, today’s most notable data release will be the publication of Germany’s latest IFO business climate index.

January’s index is expected to report business confidence in the Eurozone’s largest economy rose to its best levels since May. Potentially boosting the euro this morning.

In the absence of any notable GBP data the pound could struggle to attract support, particularly if the focus turns to upcoming UK industrial action and its potential impact on the UK economy.

Meanwhile, USD exchange rates may be sensitive to market risk appetite amid a lull in US data, with a cautious mood potentially lifting the US dollar.

However, any movement in the ‘greenback’ could prove limited ahead of the publication of the fourth quarter US GDP figures on Thursday.