FX round-up: Sterling steadies after taking hit from services data
The pound lost ground versus the dollar on Wednesday as weak services data added to the already-uninspiring picture painted by manufacturing and construction figures earlier the week, but by late afternoon the currency had recouped its losses.
At 1530 BST, sterling was flat at $1.2920, having fallen to $1.2905 after a survey showed growth in the UK's services sector weakened to its lowest in four months in June, while business optimism dropped to its second-lowest in over five and half years.
The UK Markit/CIPS services purchasing managers' index for June fell to 53.4 from the prior month's 53.8 and shy of the consensus forecast of 53.5. Following disappointing PMIs for the manufacturing and construction sectors earlier in the week it meant the UK composite PMI for June dropped to 53.8 from 54.3 and below the market's expectation of 53.9.
Meanwhile, the level of business optimism declined to the weakest since December 2011, save for the post-referendum dip last summer.
IG analyst Joshua Mahony said: "With the services sector forming such a crucial component of the UK economy, today’s survey provides an expectation that UK GDP will remain depressed around the 0.4% level in Q2. The decline of the pound was always likely given a lower than expected services PMI reading this morning. "
London Capital Group analyst Jasper Lawler said sterling managed to wind back some of its early losses "because in the bigger picture, expectations are building that the Bank of England’s next move will be to lift rates".
Against the euro, the pound was up 0.1% to 1.1397, despite a slightly firmer June services PMI for the eurozone.
Elsewhere, the dollar was up 0.1% against the euro at 0.8824 and 0.1% weaker versus the yen at 113.17 as investors eyed the latest minutes from the Federal Reserve at 1900 BST for clues on the timing of a rate hike, and the all-important non-farm payrolls release on Friday.
Konstantinos Anthis at ADS Securities said: "Traders will remain focused on the dollar today ahead of the FOMC minutes' release that is expected to shed more light on the Fed's plans to start unwinding their balance sheet.
"Should the FOMC minutes indicate that the Fed is indeed close to normalising their policy further then the dollar will trade with a positive bias towards Friday's non-farm payroll report. A key level for the US currency appears to be the 113.50 resistance against the Japanese yen; the USD/JPY has gained around 3.5% since its June lows and a move above this barrier will lead the dollar towards the 114.00 medium-term resistance."