Economic data released at the end of last week showed positive and negative signals for the UK’s economic outlook. UK retail sales are down 3.1% year-on-year and 0.9% month-on-month. The monthly figure is worse than expected with markets expecting a negative reading of 0.5%.
PMI data showed some positive signs but was once again mixed. Services PMI trumped expectations of 52.9 with a reading of 54.9. However, manufacturing PMI was lower at 46.6 vs expectations of 48.5. A reading above 50 signals an expansion within the sector and a reading below signals a contraction. The UK is widely regarded as services-led economy, therefore, the expansion within the services sector is positive new for the pound and it’s economic outlook.
Sterling exchange rates remain elevated against a number of it’s major counterparts despite the mixed bag of data. GBPCAD, GBPAUD, GBPNZD and cable (GBPUSD) are all trading within range of the yearly high. GBPCAD is close to the 13-month high, GBPAUD and GBPNZD are both close to their 14-month highs respectively.
With sterling seemingly performing as one of the strongest currencies in 2023, why do GBPEUR rates remain subdued.
In the eurozone there has also been mixed data. Services PMI also signaled an expansion at 56.6 but manufacturing showed a contraction at 45.5. Tomorrow eyes will be watching for the release of growth (GDP) figures. Markets are expecting a positive growth reading of 1.4%.
The key driver for GBPEUR at the moment is interest rate policy. The European Central Bank are talking up their commitment to continue raising interest rates. Interest rates in the EU could now exceed the UK and US which is buoying the euro against the dollar and the pound. EURUSD is within range of the 12-month high and EURGBP is at a 6-week high.
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