GBPEUR: Sterling Loses Ground Ahead of Rates, Election

GBPEUR: Sterling Loses Ground Ahead of Rates, Election

The GBPEUR exchange rate has dipped this morning from a close near 1.16 to trade at 1.1550. The Bank of England will release their interest rate and monetary outlook imminently, while the latest polls showed that the SNP could still get a majority in the Scottish elections.

GBPEUR has resistance above 1.16 and support at 1.1475 for the day ahead and could test one of those levels.

US services sector grows fastest since 2013

The UK services sector PMI figures have delivered a reading of 61.0 in April, which is the fastest rise in activity in over 7-years. Stronger demand boosted output and stimulated, but cost pressures were still higher.

The news is a boost for the UK as the services sector is the dominant sector in the economy. But the Bank of England will be nervous that inflationary pressures were high, with the report saying:

“Input prices rose at the strongest pace for just over four years. The wide range of factors cited as pushing up operating costs included transport surcharges, staff wages, and the pass through of higher imported raw material costs by suppliers. Efforts to mitigate rising input prices resulted in a robust increase in average charges among service providers during April.”

The Bank will release its latest interest rate and monetary policy outlook today with the bank sure to stay on hold at 0.10% lending rates, while they will try to reassure investors that those rates will remain lower into 2023 or 2024. That would require subdued inflation but that is not he case in the latest numbers and central banks are collectively keen to call inflation “transitory” in order to avoid another bond market test.

Tim Moore, economics director at IHS Markit, said:

“A surge of pent up demand has started to flow through the UK economy” as pandemic restrictions lift.

The roadmap for reopening leisure, hospitality and other customer-facing activities resulted in a sharp increase in forward bookings and new project starts across the service sector. If the rebound in order books continues along its recent trajectory during the rest of the second quarter, then service sector output growth looks very likely to surpass the survey-record high seen back in April 1997.”

The pound v euro hasn’t reacted to the news as caution reigns ahead of the BoE and also the Scottish election outlook.

EU retail sales also higher

In the Eurozone, retail sales were also higher by 2.7% in March, giving further hope that the lockdown pressures are easing.

ING’s Bert Colijn said:

“This marks the second monthly increase in a row, indicating that January marked the second wave bottom in terms of retail sales. The recovery therefore already started over the course of the first quarter and we expect it to continue from here.

Among the larger countries, Germany and Netherlands showed the strongest improvements at 7.7 and 8.4% respectively, while France lagged with a -1% decline. This shows how important restrictions continue to be for the retail sector, dominating the growth profile.”