Pound Sinks as UK Service Sector Unexpectedly Contracts

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  • Progress Towards US-China Trade Deal Shores up AUD Exchange Rates – Widened trade surplus boosts Australian Dollar demand
  • Pound Stumbles on Surprise Service Sector Slowdown – GBP under pressure as UK’s economic engine stalls
  • Sharp Increase in US Oil Inventories Drives Down Canadian Dollar – Investors disappointed as oil price dips
  • Weaker ISM Index Dents US Dollar – Confidence in US economic outlook diminishes

US-China Trade Deal Progress Benefits Australian Dollar

Hopes of fresh progress towards a resolution of the US-China trade dispute encouraged the Australian Dollar to trend higher across the board yesterday. With China’s Vice Premier Liu He in Washington for another round of trade talks markets were encouraged to take a more optimistic view. AUD exchange rates also benefitted from a surprise widening of the February’s trade surplus, an improvement which suggests that recent global slowdown concerns have not impacted the Australian economy.

In the absence of any fresh domestic data today, though, the Australian Dollar looks vulnerable to renewed selling pressure.

Surprise Services PMI Contraction Leaves Pound Under Pressure

Investors were caught off guard as the UK services PMI plunged from 51.3 to 48.9 in March, leaving the Pound on the back foot. As the service sector fell into a state of contraction the mood towards the Pound soured, with this weaker showing pointing towards a softer first quarter gross domestic product. Anxiety over Brexit also limited the strength of GBP exchange rates, even as Theresa May met with Labour leader Jeremy Corbyn to discuss a potential compromise deal.

Unless the parliamentary deadlock over Brexit shows signs of breaking, however, any demand for the Pound is likely to prove limited.

Euro Softens in spite of Improved Eurozone Services PMIs

An improved set of Eurozone services PMIs failed to shore up the Euro last night, even as the sector showed solid signs of growth on the whole. This uptick was not enough to improve confidence in the underlying health of the Eurozone economy, given the weakness of the corresponding manufacturing sector data. As a result, the single currency struggled to find any traction against its rivals, even as retail sales showed signs of picking up.

Further bearishness is likely in store for EUR exchange rates with the release of the European Central Bank’s (ECB) latest set of meeting minutes.

Weaker ISM Composite Index Weighs on US Dollar

Confidence in the US economy took a blow as March’s ISM non-manufacturing composite index weakened further than forecast, falling from 59.7 to 56.1. While the index remained in growth territory this represented a sharp loss of momentum on the month, denting USD exchange rates. With the Federal Reserve looking set to leave interest rates on hold for longer investors were discouraged by this sign of economic softness.

Ahead of the release of March’s non-farm payroll report the mood towards the US Dollar is not expected to see any material improvement.

Rising US Oil Inventories Prompt Canadian Dollar Weakness

A surprise increase in US crude oil inventories left the Canadian Dollar biased to the downside last night. With signs pointing towards increased US oil production the appeal of the commodity-correlated Canadian Dollar naturally deteriorated. Even though the general sense of market risk appetite picked up, driven by optimism over a US-China trade agreement, this failed to benefit CAD exchange rates.

A stronger showing from tonight’s Ivey PMI, however, could see the Canadian Dollar recover some of its recent losses.

New Zealand Dollar Benefits from Market Trade Optimism

Increasing hopes of a breakthrough in US-China trade relations encouraged the risk-sensitive New Zealand Dollar to strengthen yesterday. As markets took a more optimistic outlook this helped to shore up NZD exchange rates, with worries over the outlook of the New Zealand economy temporarily diminished. The latest underwhelming US data also offered a boost to the New Zealand Dollar last night.

With no fresh domestic data set for release this week NZD exchange rates may struggle to hold onto a positive footing for long.

Data Releases

April 4th 17:00    EUR    German Factory Orders (YoY) (FEB)    -3.1%
April 4th 22:30    EUR    European Central Bank Meeting Minutes    
April 5th 01:00    CAD    Ivey PMI (MAR)    51.1

Post by TorFX

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