Daily Market Report - 06/08/2014

GBP:
The Pound strengthened yesterday morning after the purchasing manager’s index (PMI) data revealed Britain's services industry grew last month at the fastest pace since November, raising the chance that the rapid economic recovery will continue for the rest of the year and potentially bringing forward a rise in interest rates.

Analysts believe this may encourage the Bank of England to rethink a prediction made in May that the economy would slow slightly in the second half of 2014. The British central bank publishes new forecasts next week and some economists said the data could prompt one or two policymakers to back a rate rise at this week's policy meeting. 

On a more negative note ratings agency Moody’s warned of the threat of the housing bubble to the UK economy as the 17% boom in prices is outstripping wage growth. Rising interest rates could hit some borrowers, while others might over-reach themselves trying to buy a house. If prices tumble as a result, borrowers could be unable to pay their bills, banks could be left with bad debts, and the economic recovery could falter. Consequently, Moody hinted at a potential downgrade of the banking sector. 

USD:
The Dollar had a mixed session despite news service industries in the US expanded in July at the fastest pace since December 2005, showing the struggling US economy is building more momentum at the start of the second half of 2014.

The pickup among service providers, combined with the strongest rate of growth in more than three years at American factories, shows the world’s largest economy was strengthening at the start of the third quarter. 

Key Announcements:

09:30  BST – GBP - Monthly manufacturing production is forecast to increase to 0.7%.

13:30  BST – USD – US trade balance is forecast to marginally improve

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