Investors sold the British pound, taking profit on currency’s recent sharp gains after data on UK services came in below expectations ahead of the Autumn Budget update from Chancellor George Osborne and the Bank of England’s monetary policy decision. However, losses for sterling were limited with markets anticipating a much brighter growth and fiscal outlook from the UK government. The euro rose and spiked temporarily to a one-month high against the US dollar in front of the European Central Bank’s latest policy announcement. The single currency sank in November after the ECB cut rates to a new record low amid weaker inflation and investors could resume dumping the euro if President Mario Draghi issues a more dovish policy outlook than many expect. Nerves ahead of US non-farm payrolls data weighed on equity markets and allowed the US dollar to attract some safe haven interest.
Profit-taking weighed on the British pound and the UK currency is currently down by 0.7 per cent against the euro after Britain’s latest services data missed forecasts while investors turned cautious ahead of upcoming announcements. November’s services PMI eased to 60 from a 16-year high of 62.5 in October. Analysts were widely expecting a smaller dip to 62.
US dollar
The US dollar found some support as declining equity markets and nerves ahead of key US employment data encouraged demand for safer assets. Strong US jobs numbers could spark worries about Federal Reserve tapering stimulus happening as soon as this month. However, some in the market sold the US dollar after some mixed US economic data suggested the Federal Reserve is still months away from reducing its monetary easing programme. ADP’s private employment report for November was positive, however US services growth downshifted more than expected last month according to the ISM’s latest PMI index.
Euro
PMI data on services growth in the eurozone was revised up to 51.2 for November from an initial reading of 50.9 where it had been expected to hold. However, area retail sales disappointed, falling unexpectedly by 0.2 per cent on the month in October compared to forecasts of no change. The euro could be in line for a modest relief rally if the ECB holds fire on policy after slashing rates to a record low 0.25 per cent just last month.