Sterling stumbles ahead of latest services PMI

The Pound stumbled at the start of the week due to rumors that Chancellor Rachel Reeves would announce tax hikes to address a £22bn shortfall in public finances left by the previous government.

Reeves did however, rule out raising taxes before the autumn budget, enabling Sterling to rebound to a four-day high against the Euro.

Sterling subsequently began to trade broadly lower due to a lack of British economic data and the upcoming Bank of England decision.

Ahead of the interest rate decision, Sterling slumped as currency markets grew increasingly confident that the Bank of England would proceed with a rate cut.

This confidence was justified, as the Bank cut borrowing costs for the first time since 2020, reducing the Bank Rate by 25bps to 5%.

Sterling initially regained some ground after the decision. Four of the nine members of the monetary policy committee had voted to maintain interest rates, and the accompanying policy statement was notably hawkish.

The upcoming week starts with the release of the final services PMI results for the UK and the Eurozone. A positive reading could provide some support for Sterling.

The UK’s finalized results are anticipated to confirm that activity in the British services sector accelerated last month, with the PMI score expected to rise from 52.1 to 52.4.

Economic data for the UK will be sparse for the remainder of the week, potentially leaving the increasingly risk-sensitive Pound influenced by market sentiment. If sentiment remains generally negative, due to concerns over China’s economic health and escalating tensions in the Middle East, Sterling could face challenges against other currencies.

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