The pound gained traction against the dollar on Wednesday morning, sending it up to the 1.39 mid-range, before shifting into reverse in the afternoon. The move lower coincided with the release of official data showing new cases of Covid-19 in the UK rose to 29,312 in the latest 24-hour period, compared with 21,691 cases reported on Tuesday, and the 27,734 cases at the same point last week. This marked a notable change in fortunes after daily recorded infections had more than halved since mid-July.
A monthly health check of UK services firms showed growth in the sector – which accounts for just under 80% of the UK economy – slowed in July, as inflation surged and businesses contended with staffing issues. The IHS Markit Services Purchasing Managers’ Index (PMI) recorded its slowest growth since March together with rising costs in what is the nation’s dominant sector.
In an accompanying statement, the data company said: “Staff shortages, supply chain issues and the end of the full stamp duty holiday for residential property sales were cited as factors leading to a slowdown since June,”
By this morning, the pound vs dollar rate had slipped into 1.38 territory.
Dollar rebounds on Fed comments
The dollar rebounded on Wednesday following bullish comments from a senior Federal Reserve official and data outlining the health of the services sector in the US.
Fed Vice Chair Richard Clarida indicated that the central bank may reduce support for the improving economy quicker than expected, with the US on course to meet the Fed’s employment and inflation targets for raising interest rates. Speaking in a webcast discussion hosted by the Peterson Institute for International Economics, Clarida said: “I believe that these … necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022,”
A measure of business conditions in the US services sector – which accounts for more than two-thirds of domestic economic activity – soared to a record high last month, as a shift in spending to services from goods stimulated activity. However, businesses continued to pay higher prices for inputs due to supply restrictions.
The Institute for Supply Management (ISM) Non-Manufacturing PMI accelerated to 64.1 in July – its highest level since the series began 13 years ago – from 60.1 the previous month. A reading above 50 indicates growth in the services sector. Economists had forecast that the PMI would climb to 60.5.
Meanwhile, The ADP National Employment Report – which was offset by the ISM data – was seen as a possible precursor for softness in the influential Non-Farm Payrolls Report due on Friday from the US economy. The report showed private payrolls increased by 330,000 jobs in July, less than half of the 695,000 jobs that economists expected.
The Bank of England’s Monetary Policy Committee is broadly expected to raise its inflation forecasts today after two straight months of overshoots while leaving its quantitative easing programme and interest rate stance untouched.