We have seen Sterling drop off against most major currencies so far this week, dropping back below 1.40 against the USD and coming down almost two cents against the Euro.
Yesterday we had poor services PMI (Purchasing Managers Index) data for the U.K which actually registered worse than expectations. This data measures the amount of economic activity in the services sector, any figure above 50 is generally seen as a positive for the economy and any figure below is negative. The reason that Sterling dropped off yesterday was that analysts had predicted a figure of 54.3 and the release was quite a bit lower at 53.0. This was a 16 month low for this reading.
On the other hand European PMI measured in at 58.8 which was better than expectations, which is why we saw GBP/EUR drop off over the trading day.
Dow Jones and global share sell off
Over the past 24 hours we have seen a dramatic drop in the global value of shares, with the Dow Jones losing the largest amount of points in one day in history yesterday and the largest percentage point drop since August 2011, the aftermath of Black Monday. We have also seen European markets moving lower so far this morning. Strangely enough one of the main reasons for the Dow Jones dropping is due to positive economic news over in the states, wage growth data in America was so good on Friday that there are calls once again for another interest rate hike from the States, and due to this investors raced to move money out of stocks and to put money into other assets, such as bonds in the expectation of higher interest rates.
This is also another reason why the GBP/USD rate has dropped off as any interest rate hike is seen as positive for the currency concerned and the mere speculation of a hike is seen as very positive for a currency in general, hence the Dollar gaining strength and making it more expensive to buy.
We do have the Bank of England interest rate decision on Thursday at 12:00pm and although no changes to interest rates are expected, all eyes will be on Mark Carney, Governor of the Bank of England for any hints for when the BOE may make their next move. Any suggestion that a rate hike may be sooner than the markets had expected may give the Pound a lift, should he dampen expectations due to Brexit uncertainty or any other factor.
RBA leave rates on hold
Last night the Reserve Bank of Australia kept interest rates on hold at a record low of 1.5% as expected, rates have remained unchanged for the past 18 months. policy makers are expected to keep rates low throughout 2018 at present which may lead to the Australian Dollar not performing as well this year as it has in others, due to interest rate increase appetite elsewhere around the globe.
With interest rates elsewhere slowly rising investors are choosing to move their funds into other currencies other than the Australian Dollar, leading to Australian Dollar weakness.
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