Daily currency report
The euro’s small gains may unravel quickly as the European Central Bank prepares to announce its latest monetary policy decision and then field questions about why Spain is still stalling on a bailout.
The ECB is not expected to slash interest rates just yet, despite threats of a recession in Europe; with pressure to do so perhaps lightened after positive euro zone retail sales data that showed consumers are still spending, albeit very moderately. The good data was also supported by surprisingly strong figures from the US, which helped keep a bit of risk sentiment together in the market.
Good news would usually weaken safe havens but the US dollar opens relatively unmoved given the uncertainty ahead of a number of central bank monetary policy announcements. The Bank of England should make no changes to its monetary make-up as the British pound struggles to gather support after second-rate UK services data.
Sterling slipped to a two-week low against the euro after below-par data on Britain’s crucial services sector rounded off a week of disappointing UK PMI figures. CIPS’ service sector PMI survey for September missed expectations, dropping to a level of 52.2 from the prior month’s 53.7, instead of easing to 53 as most analysts had predicted. The sharper slowdown in growth in the country’s dominant services industry follows weak reports on UK manufacturing and construction. This has raised serious concerns amongst traders who have been expecting to see the British economy return to growth over the July to September quarter.
The US ISM non-manufacturing PMI survey jumped in September, putting the services industry on the fastest rate of growth in six months while ADP also reported a better pace of hiring last month. The US dollar may also have held firm, particularly against the pound, before Federal Reserve minutes and key US unemployment figures that could revive worries about the global economic environment.
The euro stood its ground against the majors, with better-than-expected retail sales data helping the single currency to deflect persistent Spanish concerns and climb to two-week highs against the Japanese yen. Consumer spending across the 17-member zone surprisingly grew by 0.1 per cent in August, beating forecasts of a 0.1 per cent decline which should help ease some pressure on the European Central Bank.