The Bank of England will probably opt for unchanged rates on Thursday, but overall Sterling confidence will remain very weak in the short term
Sterling dipped to lows around 0.7940 against the Euro on Tuesday before recovering back to 0.7870 as the Euro retreated sharply against the dollar. The UK currency was unable to sustain a move above 1.97 against the dollar.
The UK currency remained generally weak against the dollar on Wednesday and dipped to below the 1.96 level as sentiment remained depressed while it lost ground against the Euro.
The PMI index for the services sector weakened to 49.8 in May from 50.4 the previous month and the figure below the 50.0 level will reinforce fears over the domestic economy, especially as it was the first reading below the 50.0 level for over five years.
There will be some speculation that the Bank of England will cut interest rates this week, although the data was probably not weak enough to trigger an immediate bank move given that the prices index remained high with inflation fears persisting. Markets will still be tense ahead of Thursday’s MPC decision.