Euro Pops Cable Drops In Quiet Trade

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Market Drivers March 3, 2017
UK PMI Services misses
EUR perks up on Macron Jupe news
Nikkei -0.49% Dax -0.21%
Oil $52/bbl
Gold $1228/oz.

Europe and Asia:
GBP UK PMI Services 53.3 vs. 54.1
EUR EU Retail Sales 1.2% vs. 1.6%

North America:
USD ISM Non Manufacturing 10:00
USD Yellen and Fischer speak 13:00

Cable continued it slide lower in morning London trade after the UK PMI Services data missed its forecast showing UK slowing down.

The UK PMI Services report – the most important of the the PMI releases – printed at 53.3 vs. 54.1 as deceleration in growth continued. New orders slipped to 54.7 vs 55.9 prior while some firms reported that they are seeing a squeeze in consumer finances, and higher operating costs that were putting a damper on growth.

According to Markit’s Chris Williamson, “Weaker consumer spending was a key cause of
slower service sector growth, suggesting that household budgets are starting to crack under the strain of higher prices and weak wage growth.The ongoing steep upturn in costs suggests that consumer price inflation has significantly further to rise, adding to our belief that inflation will breach 3% over the course of the next year. “

The news puts the UK economy into the unenviable position of having higher inflation and slower growth which will likely keep the BOE accommodative and keep further downward pressure on the pound. Cable slipped to a low of 1.2214 before finding some support but could test the 1.2200 figure as the day progresses.

Meanwhile euro was better bid as news from the French election continues to show that Macron retains his sizable 20+ point lead in the 2nd round of voting. Marie Le Pen remains steady at about 25% but has failed to make any further progress and markets are beginning to ease on worries that she could score an upset victory. The EUR/USD rose about 45 points off the lows to trade just below 1.0550 ahead of the New York open.

In North America today the focus will be squarely on the US ISM Non Manufacturing report which traders will analyse for both economic potential as well as a forecaster of the NFPs due next Friday. Analysts are looking for matching print of 56.5 from the month prior, but if the number beats forecasts it could be the catalyst to take USDJPY toward the 115.00 level later today.

Boris Schlossberg
Managing Director

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