Sterling began the New Year slightly softer against several of its major rivals having snapped the run of impressive gains posted towards the end of 2013.
Although UK manufacturing PMI figures showed that the sector continued to enjoy strong expansion in December, the Pound eased lower against a bullish US Dollar and fluctuated against the Euro.
As local trading opened on Monday comments issued by Chancellor of the Exchequer George Osborne piled pressure on the Pound and the British currency fell further.
The Chancellor was quoted as asserting that additional spending cuts will need to be made in order to support the UK’s economic recovery.
This news was followed by a report which showed that the UK services sector expanded at a slower pace than forecast in December.
The services PMI came in at 58.5 in December, down from 60.0 in November and less than the 60.3 reading forecast.
However, while the result may have failed to reach estimates it is still indicative of underlying strength in the UK’s services industries.
According to Markit economist Chris Williamson; ‘Although growth of business activity slowed, it’s come down from super-strong levels and the pace of expansion remains elevated. Combined with still-strong growth in manufacturing and services, the PMI surveys suggest that the pace of economic growth will have accelerated in the fourth quarter from the 0.8 per cent expansion seen in the third quarter.’
Given the mounting speculation surrounding the prospect of the Federal Reserve tapering stimulus again at its January meeting, our forecast is that the GBP/USD pairing will remain exposed to volatility this week. Upbeat data for the US will support the case for the reining in of easing and could help the ‘Greenback’ extend its advance on the Pound.
Similarly, in a heavy news week for the Eurozone we predict that notable GBP/EUR fluctuations can be expected. While the Euro may be boosted by positive economic news, if the European Central Bank hints at the possibility of negative interest rates the Pound could end the week stronger against its European cousin.
Key UK data for the week ahead:
Tuesday – Halifax House Price Report
Wednesday – BRC Shop Price Index
Thursday – UK Trade Balance
Bank of England Rate Decision
Friday – Manufacturing/Industrial/Construction Output
Current Pound Sterling (GBP) Exchange Rates:
< Down > Up
The Pound Sterling/US Dollar Exchange Rate is currently in the region of: 1.6352 <
The Pound Sterling/Euro Exchange Rate is currently in the region of: 1.2015 <
The Pound Sterling/Australian Dollar Exchange Rate is currently in the region of: 1.8270 <
The Pound Sterling/New Zealand Dollar Exchange Rate is currently in the region of: 1.9822 <
The US Dollar/Pound Sterling Exchange Rate is currently in the region of: 0.6115 >
The Euro/Pound Sterling Exchange Rate is currently in the region of: 0.8323 >
The Australian Dollar/Pound Sterling Exchange Rate is currently in the region of: 0.5471 >
The New Zealand Dollar/Pound Sterling Exchange Rate is currently in the region of: 0.5050 >
(As of 10:30 GMT)
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