The British Pound Sterling leaped on Tuesday, June 5, after a survey showed companies in Britain’s dominant services sector grew more quickly than expected in May after a winter slump in early 2018.
But the mood concerning the pound’s outlook remained more subdued due to uncertainty surrounding Britain’s planned exit from the European Union in March 2019 and the Bank of England’s path for monetary tightening.
After slumping 3.43 percent against a resurgent dollar in May, sterling started June on the front foot, buoyed by data showing signs of a possible strengthening of the British economy after a sluggish first quarter.
The IHS Markit/CIPS services purchasing managers’ index (PMI) rose to a three-month high in May, better than forecast in a Reuters poll of economists.
That pushed sterling up to $1.3391 – close to a two-week high – before it tapered later in the session to $1.3339 as the dollar strengthened broadly. GBP=D3
Against the euro, the pound also rose to a four-day high of 87.25 pence. EURGBP=D3
Analysts at Barclays said that business conditions in Britain were less favourable today than three months ago.
“The May rebound confirms some weather-related weakness in early 2018 [but] it also shows that the underlying trend of economic growth is weak in the first half of 2018,” the analysts said in a note to clients.
Bad weather and slow growth saw markets in May drastically scale back expectations for monetary tightening.
BoE interest-rate setter Silvana Tenreyro said on Monday much of the weakness in Britain’s economy in early 2018 would probably prove temporary but that the timing for any rate rise was an open question.
With time running out for Britain to secure a deal before exiting the European Union, diplomats are hoping an EU summit on June 28-29 can break a deadlock over the terms, Reuters reports.
