- Pound (GBP) rises for a second day
- UK services PMI jumped to 52.7
- Euro (EUR) falls on recession fears
- The ECB pushed back on rate-cut bets
The Pound Euro (GBP/EUR) exchange rate is rising for a second straight day. The pair rose 0.09% in the previous session, settling on Thursday at €1.1611 and trading in a range between €1.1579 – €1.1647. At 09:00 UTC, GBP/EUR trades +0.30% at €1.1649.
The pound is pushing higher after UK business activity data came in stronger than economists had expected. The composite PMI, which is considered to be a good gauge of business activity, rose to 51.7 in December; this was up from 50.7 in November and ahead of expectations.
Delving deeper into the figures, the UK service sector outperformed by more than expected, rising to 52.7 on the PMI index, which was up sharply from 50.9 in November and well ahead of the 51-level forecast. This overshadowed a deeper contraction in the manufacturing sector.
A strong service sector could be considered inflationary and will be something that the Bank of England could monitor closely. The data also supports the Bank of England’s view that the fight against inflation is not over.
Yesterday, the Bank of England left interest rates on hold at 5.25% and reiterated that rates will need to stay high for longer, pushing back against rate cut expectations.
The euro is trading under pressure after the eurozone business activity came in weaker than expected, fuelling concerns of a recession in the eurozone economy.
The composite PMI fell to 47 in December, which was down from 47.6 in November. The service sector and the manufacturing sector performed worse than expected.
The services PMI unexpectedly fell to 48.1 down from 48.7, and the manufacturing PMI was weak at 44.2. The level 50 separates expansion from contraction.
The data comes after the ECB left interest rates on hold in the meeting yesterday and also pushed back on expectations of a rate cut early next year. However, as recession fears rise, investors question how the ECB will be able to keep rights high.