Currency Report 4/12 Sterling dips slightly after weak service sector PMI.
 

Sterling had recently hit truly exceptional levels against most currencies as the UK’s recovery takes hold and the UK sets itself apart from other leading economies by appearing to be the the first leading economies to be raising interest rates. Whilst the United States are debating when to stop QE, the UK have not done any QE for the last year. The ECB are looking at possibly negative interest rates and the Bank of Canada is no longer looking to tighten policy. Overnight we learnt that GDP in Australia was weaker than expected, again a sign of another leading economy weakening whilst the UK has been performing well.

Earlier today the pound slipped from near its strongest level in two years against the dollar after an industry report showed U.K. service growth slowed more than economists forecast in November.

Sterling dropped for a second day versus the euro. A purchasing managers index of services output fell to 60 from 62.5 in October, Markit Economics said, missing the median estimate of 30 analysts surveyed by Bloomberg for a reading of 62. The gauge has been above the 50 level that indicates expansion for 11 months. Sterling reached the strongest level against Australia’s dollar since 2010 and approached a four-year high versus the Norwegian krone. U.K. government bonds dropped.

A reading of 60 is still well in expansionary territory and it’s still a good number,” said Christian Lawrence, a currency strategist at Rabobank International in London. “The fact that we haven’t seen a sustained selloff in the pound and it was more of a knee-jerk reaction is just a reflection of this concept that things in the U.K. are getting better and this will prove supportive for Sterling.”

A gauge of U.K. shop prices declined in November, the British Retail Consortium and Nielsen Co. said in a separate report today, citing a survey. Prices fell 0.3 percent from a year earlier, after dropping 0.5 percent in October, they said.

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