Today's Pound Sterling Forecast: GBP Exchange Rates Improve on Services PMI

September 6, 2016 - Written by David Woodsmith

STORY LINK Today's Pound Sterling Forecast: GBP Exchange Rates Improve on Services PMI

Pound Sterling (GBP) Exchange Rates Bolstered by Best Services Rebound on Record

Record-breaking UK data bolstered Pound Sterling (GBP) exchange rates on Monday, with GBP/EUR, GBP/USD and GBP/AUD exchange rates advancing.

Yesterday morning’s Purchasing Managers Index survey of the UK’s vast services sector provided the Pound Sterling (currency : GBP) with a pronounced boost. Analysts had been expecting the closely-monitored figure to print at 50.0 following the previous month’s dire post-Brexit showing of 47.4. The result of 52.9 therefore strongly favoured the UK unit, pushing the Pound euro exchange rate up to close to the psychologically significant 1.2000 GBP EUR threshold.

Can the Pound Euro Exchange Rate Advance Beyond 1.20 this Week?

While the Pound Euro exchange rate climbed on Monday, the GBP EUR pairing failed to push beyond psychological support as some investors remained concerned that this rebound in UK data could be temporary.

The tertiary sector comprises almost 80% of the British economy, so the Services PMI is always the most important of the gauges of sectoral activity. However, the fact that the Composite PMI survey also pointed to a strong bounce-back from July’s disappointing result has caused analysts to upgrade their forecasts for the Q3 UK Gross Domestic Product figures, due out in October. Assessing the numbers, Chris Williamson of HIS Markit noted that,

‘A record rise in the services PMI adds to the encouraging news seen in the manufacturing and construction sectors in August to suggest that an imminent recession will be avoided.’

Williamson went on to note that,

‘The three PMI surveys point to a stagnation of the economy so far in the third quarter, meaning much hinges on the September data to see whether the economy contracts or ekes out modest growth.’

Pound Sterling (GBP) Exchange Rate Outlook More Positive, are Further Gains Forecast?

If the rebound in the UK's Services sector doesn't prove temporary, Pound Sterling (GBP) exchange rates could continue climbing in 2016, with GBP/EUR potentially hitting new best levels.

David Noble of the Chartered Institute of Procurement & Supply, which is jointly responsible for the publication of the PMI data, drilled down deeper into the services statistics and found positive signs, observing that,

‘The sector’s inertia lifted in August with a rise in both new orders and overall activity after the lull following the EU referendum. Whereas in July new work fell at the fastest rate since March 2009, August saw record month-on-month increases in both the activity and new business indices.’

He concluded that,

‘Staffing levels rose marginally, after July’s stagnation, where 14% of companies increased employment levels to meet the needs of long-term investments, new business and new product launches. The weaker pound was a catalyst for more companies to raise their charges, resulting in the strongest output price inflation since January 2014. Increased costs were also attributed to new demands for services and pressures on labour costs from the Living Wage.’

Analysts are in agreement that the near-term outlook for the Pound against the other sixteen most actively traded global currencies is now considerably more positive.

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