Yesterday the services PMI report showed that in August the U.K services sector grew at the fastest pace since 2006.The reading showed 60.7 well above the crucial 50 which indicates expansion and also above forecasts of 59.3. The pound gained further momentum yesterday after this report as it strengthened to its highest against the euro in more than three months and also helped it surge against the dollar for a third day.
This positive figure has fuelled further optimism about the British economy and its recovery. The raft of recent data in August from the manufacturing and construction sector also have shown fast expansion which challenges the cautious attitude portrayed by the Bank of England. It is, therefore, widely expected that BoE will begin to wind down monetary policy before the 2016 date that Carney has predicted. However, with the U.S supposedly tapering their bond purchases any time soon, the strength the pound is experiencing at the moment is set to decline.
Today we should expect to see the MPC keep its asset purchase target unchanged at 375bn and also the official bank rate to be kept 0.5% during the committee meeting this morning. Otherwise there will be no further data released from the UK today.
The eurozone business output data issued yesterday showed its fastest growth rate in more than two years. This news was accompanied by that of other data from Brussels highlighting the EU’s evasion of recession through the second quarter of the year.
The GDP assessment by the Eurostat office, recently reaffirmed, showed 0.3% growth within the three months to the end of June.
Financial information service Markit, released private sector data showing a transition from contraction to growth for both Spain and Italy in the month of August. Their recent PMI score for the eurozone, the highest since June 2011, showed an increase from 50.5 for July to 51.5 in August.
Today the ECB will meet in Frankfurt to release the decision on the interest rate, which we anticipate to remain at the same record low of 0.5%. This will be followed by ECB President Mario Draghi’s press conference regarding monetary policy.
The USD edged lower against it’s main competition yesterday- GBP, YEN, AUD. The recoil in dollar strength comes following 4 straight session of gains in the ICE dollar index. The dollar index DXY which tracks the USD against it’s 6 main rivals, fell from to 82.145 from 82.344 last Tuesday. Traders and investors are also debating positions prior to the release of Non-farm payrolls on Friday. As ever, Friday will be key to market movement across the board. Ultimately NFP strength will guide the FED decision on this months proposed tapering. It’s expected to show U.S employers added 180,000. Compared to 162,00 in July. The FED’s next policy meeting will occur 17-18th September. A reduction in QE of approximately $10bn is widely expected.
The U.S trade deficit in July rose 13.3% to 39.1bn compared with expectations of 39.0bn. This followed nearly 4 year lows reached in July when it fell to 34.5bn.
We also saw the release of the FED’s beige book yesterday. This is a insight into the state of the economy in 12 Federal districts. It showed consumer spending on cars and housing sustained a “modest to moderate growth” from early July to late August. Residential real estate sales increased moderately compared with the previous report.The effect of high interest rates was reflected in today’s report with conditions in housing and bank lending slowing from the previous Beige book.
Currency action yesterday came amid a flurry of geopolitical developments, including President’s Obama defence in his stance on Syria in a news conference with Sweden’s PM. The U.S senate also pledged support to a attack on Syria.
Data releases out of the U.S today include Continuing Jobless claims, Non Farm productivity and Factory orders.