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Pound steady despite UK data

Pound steady despite UK data


UK Services PMI figures for April registered 13.4, up from the preliminary estimates of 12.3, but still a record low by a country mile (the previous low was 40.1 back in November 2008). The composite PMI contracted to 13.8 from 36.0 in March; also a record low and in the survey component 79% of companies reported a decline in activity, severe cash-flow constraints and 49% of companies reported a decline in employment. The Pound’s reaction was muted as a steep economic downturn had already been priced in. Sterling later gained significant support from the German court ruling against EU monetary easing and the Euro dropped back to test support above the 1.1500 level.

The US session was relatively quiet as the Pound hovered near 1.2450 against the Dollar and the Euro crept just below 1.1500. The UK coronavirus death toll exceeded that of Italy and the Pound struggled to benefit from improved risk appetite. This morning the Pound is down near 1.2430 on the Dollar and the Euro is still holding below the 1.1500 mark ahead of tomorrow’s Bank of England policy statement.


The US Markit PMI services-sector index was revised lower to record low of 26.7 from the flash reading of 27.0 with output charges declining sharply. The ISM non-manufacturing index declined to an 11-year low of 41.8 from 52.5, although this was above consensus forecasts of 37.0. There were very sharp declines in business activity and new orders on the month with a sharp dip in employment. The headline index was boosted by a substantial lengthening of supplier delivery times while, in contrast to the PMI data, prices increased on the month. Employment data will be a key focus over the next few days with ADP data today.

St Louis Federal Reserve (Fed) President Bullard waded into the wider Euro debate with comments that Euro-zone divisions could impede the crisis response. The Euro remained on the defensive and traded around the 1.0825 area this morning against the USD. 


The German Constitutional Court ruled that although the ECB bond-buying programme does not violate contravene budget deficit financing rules, the Bundesbank had not provided evidence that it was justified. The Bundesbank would have to stop buying bonds in three months’ time unless such evidence was provided. The ruling applies to the long-running PSPP programme which started in 2015, it doesn’t apply to the emergency coronavirus EUR 750bn PEPP programme. Medium-term uncertainty jumped significantly and undermined Euro confidence, especially with a jump in Italian bond yields, triggering a sharp dip lower to 1.0825 against the Dollar.


Data to watch

12:15 – ADP Non-farm Employment Change 

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