Sterling Erases Losses on News of Steady UK Services Growth
THE TAKEAWAY: PMI for Services shows steady growth -> BoE expected to leave asset purchase plan unchanged -> Sterling erases earlier losses
United Kingdom services output continues to grow at a steady pace, according to the Purchasing Managers’ Index by Markit Economics. PMI services for May was reported at 53.3, growing at the same rate as the previous month and beating analysts’ expectations for a drop to 52.4. A PMI over 50 indicates sector growth.
The steady growth was the result of gain in new business, and UK PMI services survey has signaled growth for 17 straight months. However, business confidence was at its lowest point of the year according to the index, due to worries over the Euro crisis.
Markit’s Paul Smith said in the report that although the UK economy remains relatively fragile, the GDP figures are “overstating the extent of the downturn.” Yesterday, a UK PMI survey signaled that construction output growthslowed in May.
Later today, the Bank of England will announce interest rates for June and make a decision on its current quantitative easing program (asset purchase target). Although most analysts surveyed by Bloomberg forecast that both measures will remain unchanged, there is speculation that the bank will increase its asset purchasing program in an attempt to fight economic contraction.
GBPUSD erased earlier session losses on the news of the better than expected PMI for services. The pair rose yesterday as risk appetite took hold of the market following reports that Germany is drafting a plan to support Spanish banks.
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