FX Focus: Pound fails to halt slide despite better than expected PMI services data

The pound slipped against its main rivals on 5 January, even though a better-than-expected reading on the state of the UK services sector somewhat helped limit the damage.

Having recorded marginal gains against the dollar in the previous session, sterling was again on the back foot against the greenback and the euro. By early afternoon, the UK currency was down 0.25% against the euro to €1.1712 and was 0.15% lower against the dollar to $1.2303, having previously fallen as low as €1.1650 and $1.2269.

The pound was also under pressure against the yen, tumbling to ¥143.53, its lowest level against the Japanese currency in over two weeks.

The sluggish performance came despite a stellar report on the health of Britain's services sector, which grew at the fastest pace in almost a year and a half in December, boosted by a sharp increase in new business.

"Although UK economic data continues to repeatedly exceed expectations, the unending Brexit woes have heavily damaged buying sentiment towards the sterling," said FXTM research analyst Lukman Otunuga.

"Uncertainty remains the major factor behind sterling's painful losses with steeper declines expected if the pending Brexit negotiations rekindle investor jitters."

Elsewhere, the euro was on the back foot against the yen, falling to but gained 0.29% against the dollar, climbing to $1.0519.

German economists have urged the European Central Bank to lift interest rates, after inflation across the Eurozone hit the highest rate in more than three years on Wednesday.

"It is time for a normalization (of monetary policy)," Stefan Bielmeier, the chief economist at DZ Bank, told German newspaper Bild. "Now a change in interest rates is doable."

Across the Atlantic, the greenback retreated across the board after the Federal Reserve's December policy meeting minutes drew attention to the uncertainty over how Donald Trump administration's fiscal policies might transform the economic outlook.

The dollar fell 0.90% and 0.39% against the yen and the Swiss Franc respectively, fetching ¥116.19 and CHF1.0169 and slid 0.10% and 0.24% against its Canadian and Australian counterparts to CAD$1.3289 and AUD$1.3690 respectively.

The US currency was also sharply lower against the Chinese yuan, falling to 6.8071 yuan, its lowest level since November. According to Kit Juckes, head of FX at Societe Generale, the sharp move was orchestrated by the Chinese authorities to prevent unwanted strength of the currency on a trade-weighted basis and reverse some of the gains of recent years.

"There were echoes of the move we saw this time last year when tighter liquidity and triggered a rally for the yuan and set the stage of the dollar's reverse - a 6% trade-weighted fall between mid-January and early may that was only full reversed by the presidential election," he said.