FX round-up: Sterling, dollar fall as glum traders react to UK, US data

By Andrew Schonberg

Date: Friday 03 Feb 2017

FX round-up: Sterling, dollar fall as glum traders react to UK, US data

(ShareCast News) - Sterling and the US dollar are southbound on most major crosses late on Friday as glum traders digest weaker than expected UK services PMI data and, in the US, cooling wage growth and an uptick in the jobless rate.
At 17:19 GMT, sterling was down 0.07% to $1.2518, and down 0.37% to €1.1602. The dollar-spot index was 0.19% lower at $99.604.

"The pound took another tumble after the latest (UK) services PMI for January slipped back more than had been expected," said Michael Hewson, chief market analyst at CMC Markets UK.

"Once again cost inflationary pressures showed no signs of abating, causing firms to also praise prices," he added.

This outcome, noted Hewson, made Bank of England's decision to keep its inflation forecast unchanged "all the more curious".

The Markit/CIPS UK services purchasing-managers' index fell to 54.5 from 56.2 in December, missing expectations for a reading of 55.8.

In the Eurozone, Markit's final services PMI printed at 53.7 in January, in line with December and up from the flash estimate of 53.6.

Sterling's weakness did help the UK's FTSE 100 index of stocks in its march to a higher close.

Banking and financial issues made heady gains, benefiting from expectations US President Donald Trump will ink an executive order for reviewing the Dodd-Frank law with a view to relaxing its harsher components.

The 2010 Dodd-Frank Act was heralded in to avoid financial meltdowns such as that seen in 2008-2009. Critics say the act is overly restrictive.

Meantime, sterling and the dollar performed poorly versus the currencies of Australia, Canada, New Zealand and Japan, but noticeably worse against South Africa's rand.

The US non-farm payrolls report showed that 227,000 new jobs were created in January, from 157,000 the previous month and above the consensus forecast of 180,000.

However, the unemployment rate unexpectedly ticked up 0.1 percentage points to 4.8%, rising due to an increase in labour force participation rate.

The average hourly earnings disappointed in January, growing by just 0.1% month-on-month, placing the year-on-year gain lower at 2.5%.

"The dollar took a bit of a nose dive in the wake of this afternoon's employment report," wrote Hewson.

"With rising inflationary pressures in the ISM numbers this week, there could be some on the FOMC who think that rising prices require some form of rate response irrespective of what wages do," he opined.

Finally, UK Prime Minister Theresa May took her less-than-welcome Brexit soapbox to Malta, which is hosting the latest and informal EU summit.

She discussed her recent meeting with the US' controversial new president and the proposed to be a bridge to Trump, which unsurprisingly appeared to be rebuffed out of hand.

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