Pound Subdued As UK Service Sector Growth Slows To Six-month Low

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The pound softened on Thursday, following the publication of lacklustre UK PMI releases.
UK Strategy
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The pound softened on Thursday, following the publication of lacklustre UK PMI releases.

Sterling has already faced some volatility this morning, although it's currently muted, with GBP/EUR subdued at €1.1733 and GBP/USD flat at $1.2693. GBP/CAD is rangebound at CA$1.7431, while GBP/AUD and GBP/NZD waver around AU$1.9231 and NZ$2.0823, respectively.

Looking ahead, will a huge slump in UK retail sales act as a headwind for the pound today?

What's been happening?

The pound stumbled yesterday as the UK's latest PMIs painted a mixed picture of the country's private sector.

While May's preliminary figures reported the UK manufacturing sector unexpectedly returned to growth, Sterling was undermined as growth in the vital service sector slowed to a six-month low.

Elsewhere, the Bank of England (BoE) announced it would be cancelling all public statements from its policymakers until after the UK's upcoming general election, cementing expectations the bank will not cut rates in June.

In contrast, the euro received a boost on Thursday as the Eurozone's own PMIs beat expectations with the composite PMI rising to a one-year high.

At the same time, the US dollar faced a sluggish start yesterday, but rallied in the afternoon thanks to a drop in initial jobless claims and stronger-than-forecast US PMI figures.

What's coming up?

Today's session kicked off with the publication of the UK's latest retail sales data.

April's figures reported an unexpectedly large 2.3% contraction in sales growth. Signs that consumer spending slumped at the start of the second quarter may drag on the pound today if it is seen as raising the odds of a BoE rate cut over the summer.

Meanwhile a speech by one of the European Central Bank's (ECB) more hawkish policymakers, Isabel Schnabel, could influence EUR this morning. But with Eurozone data thinning out later on, movement in the euro may be limited.

Closing out this week's session will be the publication of the latest US durable goods orders release. Will a sharp decline in orders last month exert some pressure on the US dollar this afternoon?

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