Pound Falls, Dollar Gains Despite Positive UK Services Data
GBP
GBP/USD has experienced a significant decline, currently trading at 1.2591 (interbank), while GBP/EUR is at 1.1707 (interbank).
This morning, Services PMI for the UK showed improvement, rising to 54.3 in January from 53.4 in December, marking its highest reading since May 2023 and surpassing the initial estimate of 53.8.
Additionally, the composite PMI, which combines both surveys, reached an eight-month high of 52.9 in January, up from 52.1 in December, reflecting the larger services sector's greater influence.
Last week, the Bank of England projected a gradual recovery for the UK's economy in 2024 following stagnation in the latter part of the previous year, attributed to decreasing inflation and market expectations of potential interest rate cuts.
Nonetheless, the BoE's Chief Economist, Huw Pill, indicated that any rate cuts from the current 5.25% were likely some distance away, citing concerns over rapid wage increases and labor-intensive services' cost.
Today’s Events (GMT):
09:30 - Composite PMI (Jan) - Actual: 52.9 vs Forecast: 52.5
09:30 - Services PMI (Jan) - Actual: 54.3 vs Forecast: 53.8
17:30 - BoE MPC Member Pill Speak
EUR
EUR/USD continues its decline and is presently trading at 1.0770 (interbank) in today's trading session.
German economic indicators continue to signal recessionary trends. In December, the German trade surplus widened from €20.7 billion to €22.2 billion, exceeding economists' expectations of a €18.8 billion surplus.
Moreover, Eurozone PMI Services for January finalized at 48.4, a slight drop from December's 48.8, while PMI Composite finalized at 47.9, up from the prior month's 47.6, reaching a six-month high. Spain and Italy have outperformed their northern counterparts, with Composite PMIs of 51.5 and 50.7, respectively, compared to Germany (47.0) and France (44.6).
The persistent labor shortage across the Eurozone, leading to wage hikes and input price inflation, especially in major economies, suggests a cautious approach to workforce reductions, even in weaker service sectors in Germany and France.
In contrast, decreasing inflation in Germany and France, the Eurozone's largest economies, has raised expectations that the ECB may begin reducing its benchmark deposit rate from the current record-high of 4% by April.
Today’s Events (GMT):
07:00 - German Trade Balance (Dec) - Actual: 22.2B vs Forecast: 19.0B
08:55 - German Services PMI (Jan) - Actual: 47.7 vs Forecast: 47.6
09:00 - S&P Global Composite PMI (Jan) - Actual: 47.9 vs Forecast: 47.9
09:00 - Services PMI (Jan) - Actual: 48.4 vs Forecast: 48.4
USD
The US Dollar Index, which tracks the U.S. dollar against a basket of six currencies, remains steady near a two-month high of 104.02, fueled by robust labor market data and hawkish signals from the Federal Reserve, prompting traders to reconsider expectations of early interest rate cuts.
Regional currencies faced steep losses on Friday after U.S. nonfarm payrolls data for January exceeded expectations, indicating continued strength in the labor market.
Furthermore, Fed Chair Jerome Powell, in a late-Sunday interview on CBS 60 Minutes, emphasized the U.S. economy's resilience, giving the Fed room to maintain a steady monetary policy for now. He also highlighted a data-driven approach to potential rate adjustments.
Powell's statements followed similar signals from the Fed during its first 2024 meeting, further boosting the dollar and Treasury yields.
The U.S. economic calendar is relatively quiet after a busy week, including the January jobs report and the Fed's initial meeting of the year. The key data point to watch today is the ISM Services PMI data for January, with economists anticipating an uptick in sector activity.
Today’s Events (GMT):
14:45 - S&P Global Composite PMI (Jan) - Forecast: 52.3
14:45 - Services PMI (Jan) - Forecast: 52.9
15:00 - ISM Non-Manufacturing PMI (Jan) - Forecast: 52.0
19:00 - FOMC Member Bostic Speaks
CAD
The USD/CAD pair is gaining positive traction, reaching a one-week high and currently trading at 1.3489 (interbank).
U.S. Central Command reported a defensive strike against a Houthi land attack cruise missile and four anti-ship cruise missiles prepared to launch in the Red Sea. Additionally, the U.S. signaled potential strikes on Iran-backed groups in response to an attack on American troops in Jordan. This development has supported Crude Oil prices and halted the corrective decline from this year's peak, providing underlying strength to the Canadian dollar.
This week, Bank of Canada Governor Tiff Macklem will deliver a speech on the effectiveness and limitations of monetary policy at the Montreal Council on Foreign Relations. Furthermore, the BoC will release its summary of deliberations from its most recent interest rate decision.
Statistics Canada will also release its latest labor force survey for January on Friday. Job growth stalled at the end of 2023, with only 100 jobs added in December, and the unemployment rate remained at 5.8% to close the year.
No significant events are scheduled for today.
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