The pound rose to its highest level in a week against the US dollar, helped by better-than-expected data from Britain’s services sector as well as weakness in the dollar. UK Services PMI edged up to 51.0 in May from 50.4 last month, its strongest reading in three months and slightly above forecast as new business levels increased for the first time since December.
The uptick in the services sector, which makes up around three quarters of the UK’s economy, helped to offset disappointing data from the manufacturing and construction sectors released earlier in the week. The overall composite PMI figure came in at 50.7, below the 51.0 estimate but importantly, above 50 which indicates expansion.
GBPUSD opened at 1.2711 and rose in the morning to reach a 1-week high of 1.2738, the gains were short-lived and the pair fell in the afternoon, closing at 1.2701.
GBPEUR opened at 1.1273 and initially fell a low of 1.1267 before rising again for the rest of the day, eventually hitting a high of 1.1310 in the evening.
A lack of progress in US-Mexico trade created demand for safe-haven currencies amid reduced risk sentiment. The Japanese yen was close to a five-month high against the dollar, up 0.3%. Negotiations in Washington on Wednesday aimed at averting tariffs on Mexican goods made minimal progress. President Donald Trump unexpectedly told Mexico to take a harder line on illegal immigration or face 5% tariffs on all exports to the US.
On the subject of global growth, Managing Director of the International Monetary Fund, Christine Lagarde warned the trade war between the US and China and potential action against Mexico may cause “Decelerating growth, but growth nonetheless” Growth is expected to be at 3.3% by end of the year, Largarde said, “ We do not see at the moment, in our baseline, a recession”
The euro has also strengthened on the back of dollar weakness, with investors betting on The Federal Reserve cutting rates soon. The European Central Bank meets today, and traders will be looking to see whether there are concerns of a downturn in growth and what actions might be taken as a result. Some analysts believe that the ECB would have to be very concerned about the outlook of the euro economy to elicit a reaction in the single currency.
EURUSD opened at 1.1270 and hit a high of 1.1287 just after midday before dropping back down again in the afternoon to close at 1.1234