Sterling pared earlier gains against the US dollar to trade near its previous close at $1.5400.
Confidence in sterling was hit after a report showed growth in the services sector easing in August. According to Markit and the Chartered Institute of Purchasing & Supply (CIPS), the Purchasing Managers Index (PMI) for services fell to a reading of 51.3 in August from 53.1 the previous month. The slowdown in growth was more than the 52.9 reading that economists surveyed by Reuters were forecasting. Earlier in the week , Markit and CIPS released the PMI for manufacturing and construction which both came in below expectations. The three reports combined point to a contraction in domestic growth and suggests that the UK economic recovery may be losing momentum in the current quarter. Chief Economist Chris Williamson noted ‘Our model based on the three PMI surveys up to August is signalling a GDP increase of 0.5% for Q3, meaning the second quarter 1.2% surge in GDP will represent a peak in the recovery cycle.’ Despite the signs of weaker domestic growth, GBP/USD could rise if the rally in equities continues, which may be affected by this afternoon’s US non-farm payroll data.
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