The service PMIs have provided sufficient incentives to widen the currency ranges seen yesterday, though the net change is modest. It was the strong UK service PMI that spurred the euro’s losses more than that slight down tick in the euro area flash reading, as cross positions were adjusted.  Still the euro is holding above last week’s lows seen just below $1.3370 on July 30.Â
The UK services reading rose well above expectations to 59.1. This is an eight month high. The consensus had expected a small improvement from the 57.7 reading in June. Given the significance of the service sector, it more than offsets the modest disappointment seen in the manufacturing PMI (55.4 down from a revised 57.2). Â
The robust report lifted UK interest rates 2-3 basis points (short and long end,) and lifted sterling back the highs seen before last weekend just below $1.69. The euro is also holding just above the lows against sterling it saw at the end of last week (~0.7925). Some caution is evident. Although the BOE meetings on Thursday, no one expects a hike, though the Shadow MPC has called for a 50 bp hike. Some observers expect a dissent or two, but these will not be evident until the minutes are released on August 20. There may also be some hesitancy ahead of televised debate later today on the the Scottish referendum.Â
The euro area service PMI was…meh, slipping from the 54.4 flash reading, a two-year high to 54.2.  The German reading edged up to 56.7 from 56.6 flash, while France was unchanged at 50.4; the flash having picked up the improved from the lowly 48.2 reading in June. Â
Italy and Spain moved in opposite directions.  Italy is struggling, and this will be clear in tomorrow’s Q2 GDP report, where a 0.1% rise will simply offset the 0.1% contraction in Q1. The risk is on the downside. The service PMI slipped to 52.8 from 53.9 in June. Economists had expected a small increase. Spain improved to 56.2 from 54.8. New business, a leading indicator, was especially strong rising to 58.0 from 54.4. Â
