Trading
Sterling trims losses after better-than-expected PMI data
Global Banking & Finance Review®
Company
By Joice Alves
LONDON (Reuters) -Sterling trimmed some of its losses on Thursday after better-than-expected UK PMI numbers for June, but the pound remained vulnerable to political risks and recession fears.
The PMI’s preliminary composite index held at 53.1 in June, above the median forecast of 52.6 in a Reuters poll of economists, and unchanged from May.
The pound edged 0.1% lower against a strengthening U.S. dollar to $1.2253 at 1317 GMT, having earlier fallen below $1.22.
Against a weakening euro, sterling rose 0.4% on the day at 85.78 pence, having earlier touched a one-week low.. [FRX/]
“Markets are likely reading the UK survey results in comparison with the euro zone ones, which instead showed a larger drop than expected,” said Francesco Pesole, FX strategist at ING.
The numbers “partly – and temporarily – ease some market concerns about the UK economic outlook, supporting the current aggressive Bank of England rate pricing”.
Jane Foley, head of FX strategy at Rabobank in London, added: “it is a relief to the market that the UK services PMI was not weaker due to the long Jubilee weekend”.
The BoE raised its benchmark rate by 25 bps to 1.25% on June 16 and said it was ready to act “forcefully” if needed to stamp out dangers posed by inflation, despite fears that the rising cost of borrowing could further harm the economy.
ELECTION DAY
Investors were also on watch for further signs of political instability as the ruling Conservative Party was contesting two by-elections on Thursday: one in Tiverton and Honiton in the southwest and another in Wakefield in the north. A defeat in either place could spur Conservative lawmakers to find a way to oust Prime Minister Boris Johnson after months of scandal. [nL8N2YA2OU]
“Losses for the Tories today will contribute to the ongoing clouds hanging over the PM’s prospects as party leader,” said Rabobank’s Foley.
“They will therefore likely serve as a reminder of the distractions created by the behaviour of various party officials, which is a negative factor for investment confidence and the pound.”
In the meantime, strikes have crippled Britain’s rail network this week as union bosses, train operating firms and the government faced off over demands that workers’ pay increases keep pace with galloping inflation, at a 40-year high of 9.1% in May.
Official data published on Thursday showed that surging debt interest costs triggered by the leap in inflation forced the British government to borrow more than expected in May at 14 billion pounds ($17.14 billion).
(Reporting by Joice AlvesEditing by Mark Heinrich and Toby Chopra)
Foreign exchange, or Forex, is the global marketplace for trading national currencies against one another. It is the largest financial market in the world, with a daily trading volume exceeding $6 trillion.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation to keep the economy running smoothly.
The Bank of England is the central bank of the United Kingdom, responsible for issuing currency, maintaining monetary stability, and overseeing the financial system.
A benchmark interest rate is the interest rate set by a central bank that serves as a reference point for other interest rates in the economy, influencing borrowing and lending rates.
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