Sterling slides due to worse than expected PMI figures

Published: 05 July, 2012

Sterling had a poor day yesterday as the services Purchasing Managers' Indices (PMI) figures released were worse than expected.

Currency rates - July 5

EURO/GBP - 1.2448
US$/GBP - 1.5608
CHF/GBP - 1.4962
CAN$/GBP - 1.5806
AUS$/GBP - 1.5204
ZAR/GBP - 12.7014
JPY/GBP - 124.29
HKD/GBP - 12.1013
NZD/GBP - 1.9439
SEK/GBP - 10.7834
AED/GBP - 5.7278
US$/EURO - 1.2532
INR/GBP - 85.85

The focus yesterday was on former Barclays boss Bob Diamond as he went before the Treasury Select Committee to explain the LIBOR fixing scandal that has shaken the already fragile financial sector. The market expects that the Monetary Policy Committee will vote to keep interest rates on hold today at 0.5%; but, look to increase quantitative easing by £50 billion in attempt to shore up the UK's economy. There is the potential for a lot of volatility today, especially with the European Central Bank's (ECB) rate announcement just 45 minutes after the Bank of England's.

The euro was weak yesterday in anticipation of the expected ECB's cut to interest rates today by 25bps to 0.75%. On the data front, final services PMI came in as expected; but, monthly retails sales figures were much better than expected posting a 0.6% growth showing a big improvements on last month's -1.4% figure; but, did little to help the euro's strength. Today's bench mark 10 year Spanish bond auction will play an impact on the market; but, will play second string to the ECB rate announcement which could cause a lot of volatility.

The US dollar performed well yesterday despite the US markets being extremely quiet as the Americans enjoyed the Independence Day bank holiday. The Institute for Supply Management (ISM) manufacturing PMI indices data released today is expected to show a gentle industry expansion; but, we will have to see if the release follows the trend of weak PMI data released across the rest of the world this week. The unemployment data released today will be the main news on the agenda and will provide some direction to the expected figures for the highly influential Non-farm payrolls data released on Friday

Elsewhere, the Swedish krona was extremely strong yesterday following the news that its central bank decided to keep its interest rate on hold at 1.5%. The Australian dollar also performed well as much better than expected retail sales figures were released; whilst, the New Zealand dollar and Japanese yen were not too far behind.

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