PMIs take focus
Friday 24 June, 2022
Daily Currency UpdateSterling dipped in the early part of the European session yesterday. At 8am UK time GBPUSD was below the $1.22 handle, however through the day it made a steady recovery and is now trading closer to $1.23.
It was a similar story for GBPEUR, with the pair dipping below €1.16, then making a recovery throughout the day to trade into the mid €1.16s. Both pairs have been trading within a narrow range for most of the week.
The Purchasing Managers' Index (PMI) is a measure of the economic health of the manufacturing and service sectors. Yesterday, Flash Manufacturing PMIs showed that activity is slowing more than expected as high inflation takes its toll on manufacturing. The number printed was 53.4 compared to a previous figure of 54.6. On the other hand, the Flash Services PMI remained the same at 53.4, which is the larger part of the UK economy.
UK retail sales also came out this morning slightly better than expected at -0.5% vs an expected -0.6%, which is providing Sterling with some support after a relatively positive day yesterday.
Key MoversEurozone June flash services PMI dropped to 52.8 over an expected reading of 55.5, with manufacturing PMI dropping to 52.0 over an expected 53.9. These readings signalled euro area growth slowing to a 16-month low. It’s a sign that the economy is really starting to feel the effect of high inflation. These readings highlight that both the stagnation of demand and dampening outlook were widely blamed on the rising cost of living, tighter financial conditions, and concerns over energy and supply chains.
The US dollar was sold off by investors yesterday after poor PMI readings highlighted the risk of recession. EURUSD traded from sub $1.05, to break above that level. The US dollar continued its decline this morning as investors assess the path of the US Federal Reserve’s monetary policy and whether plans of aggressive interest rate hikes will lead their economy into a recession. The Fed is expected to raise rates by another 75 basis points in July, with Fed Governor, Michelle Bowman, supporting 50 basis point hikes for the next few meetings after July.
- GBP/USD: 1.2240 - 1.2330 ▲
- GBP/EUR: 1.1610 - 1.1690 ▲
- GBP/AUD: 1.7710 - 1.7830 ▼
- EUR/USD: 1.0505 - 1.0570 ▲