The pound edged slightly higher against the US dollar on Tuesday, although any gains were limited by election uncertainty, weak PMI readings and a looming Bank of England (BoE) monetary policy meeting. Data released this morning showed the UK services sector struggling in October as new business fell for the second month in a row, with Brexit uncertainty blamed for dragging the country’s largest sector down to its lowest level in a decade. Commenting on the data, Markit’s Chief Business Economist, Chris Williamson said: “The UK PMI surveys collectively indicated a further overall decline in private sector output in October. Contractions have now been recorded in four of the past five months, marking the worst spell since 2009 during the global financial crisis.”
The pairing was left muted this afternoon as Markit revealed overall expansion in US business activity for October remained largely subdued, with the US services sector seeing only a slow increase, undermining signs of faster manufacturing growth.
Despite widespread job cuts, firms were more upbeat about the year ahead. Markit’s Chief Business Economist, Chris Williamson commented:
“Although October saw signs of manufacturing pulling out of its recent soft patch, the far larger service sector remained in the doldrums as inflows of new work failed to grow for the first time since 2009.
“The news was by no means all negative, however, with firms becoming more optimistic about the year ahead, buoyed by hopes of an easing of trade tensions and stimulus from lower interest rates. However, the overall degree of optimism remains sharply lower than this time last year as companies remain concerned by ongoing uncertainty about the outlook.”
Meanwhile, the US Federal Reserve’s preferred PMI measure from the Institute for Supply Management (ISM) revealed non-manufacturing activity strengthened in October from 52.6 to 54.7. This likely limited US dollar losses.
Looking ahead to Thursday, the pound could be left under pressure following the BoE interest rate decision.
While the bank is expected to leave rates unchanged, Sterling could edge lower if the central bank’s meeting minutes reveal overly dovish policymakers, suggesting the bank may need to lower rates because of ongoing political uncertainty.