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Pound falters as UK services PMI hits record low of 12.9

Support for the pound weakened in response to the UK services PMI falling to a record low of just 12.9 in April, pointing towards a sharp loss of economic momentum.

The mood towards the euro also soured in the wake of April’s Eurozone manufacturing and services PMIs, which highlighted the significant impact of the Covid-19 shutdown.

Meanwhile US jobless claims continued to pick up significantly, putting the US dollar under strain.

A temporary lull in market risk aversion offered support to the Australian and New Zealand dollars as New Zealand prepared to ease its lockdown conditions.

Confidence in the underlying health of the UK economy received a serious blow as April’s services PMI plunged to an unprecedented low, leaving the pound on the back foot.

As the service sector remains the primary growth engine of the UK economy the PMI’s significant decline does not bode well for the second quarter gross domestic product reading.

With the UK government still showing reticence over the prospect of any easing of its lockdown restrictions there appeared little reason to favour the pound over its rivals.
A dramatic plunge in April’s CBI business optimism index added to the bearish mood, suggesting that any imminent recovery in economic momentum is unlikely.

However, a stronger level of market risk appetite could help GBP exchange rates to recover some of their lost ground in the near term.

On the other hand, the CBI reported retail sales index may prompt a renewed bout of selling for the pound if it offers fresh evidence of a slowdown in consumer spending.

As long as households look set to reign in their spending this would limit the chances of the economy bouncing back in the months ahead, casting a fresh shadow over the pound.

Underwhelming Eurozone PMIs weigh on euro demand

The latest signs of slowdown in the Eurozone economy limited the appeal of the euro ahead of the weekend even as a number of countries moved towards easing their lockdown conditions.

While France, Germany, Italy and Spain all began to lift some of the restrictions imposed in the face of the Covid-19 crisis this only offered limited support to the single currency.

As April’s set to Eurozone manufacturing and services PMIs disappointed the odds of a deeper impending recession put pressure on EUR exchange rates.

A deepening state of consumer pessimism on display in the German GfK consumer confidence index also put a dampener on the euro.

If the latest Eurozone business confidence index shows a similar deterioration on the month this could add to the weakness of the single currency.

Unless markets see reason to bet that the currency union could regain its lost economic momentum sooner rather than later support for the euro could prove limited.

The release of the flash first quarter Eurozone gross domestic product report may drive the euro sharply lower across the board on Thursday, with forecasts pointing towards a dramatic decline.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]

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