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Weak PMI Services figure weighs on Sterling

The Markit / CIPS UK Services PMI missed analysts’ expectations; the reading was 56.5 in May compared with a strong figure of 59.6 in April. The release for May was the ninth consecutive month above 50.0, signifying expansion. The Services PMI figure followed Tuesday’s Manufacturing PMI release that also missed the analyst consensus.

The Markit release highlighted that the outcome of the UK election had reduced business uncertainty. A key point that the market seems to have overlooked is that input price inflation accelerates to an eight-month high, which could be a leading indicator for an upward move in future CPI readings. 

The main contributor to the UK economy is the services sector, the poor PMI print led to Sterling weakening in the FX market against the majors. The outlook for Sterling is dependent on the economic data, and the impending timing of the tightening of monetary policy. GBPUSD weakened by around 85 pips from 1.5364 to 1.5288, with EURGBP moving 0.7267, reaching a session high of 0.7298.  

During the US session on Tuesday the US Dollar was on the back foot, as the Euro rallied across the board. The move was on the expectation that there will be a resolution in Greece, buoyed on the single currency. 

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