FX Focus: Pound rallies as Britain's services sector booms

The pound gained ground against its main rivals on Wednesday (5 April), boosted by a report that showed Britain's services sector grew at the fastest pace in three months in March.

Following the release, sterling gained half a cent against the dollar and by early afternoon it was trading 0.26% and 0.33% higher against the greenback and the euro respectively, exchanging hands at $1.2471 and €1.1690.

The gains came after the closely-watched Markit/CIPS UK Services Purchasing Managers' Index (PMI) rose to 55.0 in March from 53.3 the month before, the fastest expansion since December and above economists' expectations of a 53.4 mark.

The figure marked a sharp rebound from February, when the sector reported a five-month low.

The survey said firms put the growth down to supportive UK economic conditions and greater client demand.

"The data goes some way towards making up for disappointing manufacturing and construction PMI numbers earlier in the week, boosting hopes that any first-quarter slowdown from the economy's stellar 0.7% expansion in the final three months of 2016 may turn out to be less pronounced than feared," said Chris Saint, senior analyst at Hargreaves Lansdown.

However, FXTM analyst Lukman Otunuga warned there could be more trouble looming ahead for the pound.

"Although economic data from the UK continues to display post-Brexit resilience occasionally, the possibility of growth decelerating in the first quarter of 2017 may weigh heavily on sentiment," he said.

"Despite today's upsurge in prices, Sterling could still be destined to sink lower as the Brexit fueled uncertainties haunt attraction towards the currency."

Elsewhere, the euro and the dollar were both broadly unchanged, with US traders awaiting the minutes of the latest Federal Reserve meeting and President Donald Trump's meeting with his Chinese counterpart.

Colin Cieszynski, chief market strategist at CMC Markets, said the minutes were likely to be "a non-event, considering the Street has had several weeks to react to the dot plot, statement and numerous comments from Fed officials since the meeting."

However, the minutes, which will be released at 7pm BST, could offer some indication over whether the Fed will slow the pace of rate hikes in the future.

The greenback was 0.15 and 0.10% higher against the yen an the Swiss franc, trading at ¥110.91 and CHF1.0028 respectively, but lost 0.12% against its Australian counterpart and was fetching AUD$1.3196.

Meanwhile, Richmond Fed President Jeffrey Lacker unexpectedly quit on Tuesday, after revealing he had leaked confidential material on the Fed's plans. The departure of Lacker, who was not a voting member of the Federal Open Market Commitee and was noted for his hawkish stance, was unlikely to have a major impact on trading, Cieszynski added.

"The surprise resignation of Richmond Fed President Lacker over leaked information hasn't impacted trading, but does highlight an ongoing changing of the guard at the Fed likely to continue over the next year," he said.