Service data in eurozone suggests recession on the horizon as market awaits ECB and BOE meeting today
05/Jul/2012 • Currency Updates•
Sterling fell against the dollar yesterday after news of the UK’s service PMI fall to an 8 month low; this follows weak PMI surveys on manufacturing and construction earlier in the week and suggests the UK economy may have contracted for the 3rd consecutive quarter in the 3 months to June. With the UK’s dominant service sector growing at a much weaker pace than expected in June, it furthered expectations from the Bank of England to opt for more stimulus to aid the struggling economy.
A decision should be made when bank of England policymakers meet later today. The impact on the pound of more QE should have a limited effect as it widely expected. Elsewhere, Bob Diamond deflected all probing questions in his appearance in front of the Treasury Select Committee in what turned out to be a damp squib.
The single currency slipped against the dollar and the yen yesterday as grim economic data strengthened expectations that the European Central Bank is about to cut interest rates even further today, keeping the single currency under more pressure. It also fell to an 11 and a half year low against the Swedish krone as Sweden’s central bank kept interest rates unchanged and only slightly trimmed its forecasts for future borrowing costs, despite risks from the ongoing eurozone crisis. Spanish government bond yeilds crept higher once again ahead of an auction later today, whilst the ECB interest rate decision is out around midday.
No economic news from the US yesterday due to the 4th of July national holiday so any movement came off the back of news from further afield. The dollar had a strong day’s trading against sterling and the euro, and due to dollar strength we saw the price of gold retreat as the dollar has an inverse relationship with the precious metal. The main data release today will be the initial jobless claims figures which will shed light on the outlook for the all important Non Farm Payroll figure due on Friday.