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Sterling looks to be consolidating its gains

The pound enjoyed broad support on Tuesday, as Sterling sentiment was underpinned by strengthening Bank of England (BoE) interest rate bets.

Sterling looks to be consolidating its gains this morning, with GBP/EUR flat at €1.1404 and GBP/USD stable at $1.2506. GBP/CAD is buoyed at CA$1.6828, while GBP/AUD jumps to AU$1.8594 and GBP/NZD retreats to NZ$1.9706.

Coming up, will slowing growth in the US service sector pull the US dollar lower this afternoon?

What’s been happening?

The pound trended broadly higher through yesterday’s session, with the GBP/USD exchange rate even striking a nine-month high, as investors grew increasingly confident the Bank of England will raise interest rates again next month.

The jump in the GBP/USD exchange rate was aided by broad weakness in the US dollar on Tuesday, with demand for the safe-haven currency being dented by a risk-on impulse.

Adding to the pressure on the ‘greenback’ was a larger-than-expected fall in US job openings in February. Signs of slack in the US labour market were seen as reducing pressure on the Federal Reserve to continue raising interest rates.

At the same time, after relinquishing its initial gains, the euro was left to trade sideways by the end of yesterday’s European session, amid concerns over a potential escalation of tensions between Russia and the rest of Europe as Finland became a member of NATO.

What’s coming up?

Turning to today’s session the spotlight will be on the latest ISM non-manufacturing PMI.

March’s index is expected to report the pace of growth in the US service sector slowed. Coupled with the weaker-than-expected manufacturing PMI released at the start of the week, this may be interpreted as another sign the US economy is faltering. This could drag the US dollar lower as it weakens Fed rate hike bets.

Also of note to USD investors will be the latest ADP employment report. Could an underwhelming reading dampen expectations for Friday’s more influential non-farm payrolls release?

In the meantime, the euro is firming this morning after Germany’s latest factory orders release reported a much stronger-than-expected jump in order growth in February.

This morning will also see the publication of the UK’s own services PMI.

This could see the pound weaken as March’s finalised figures are likely to confirm UK service sector growth also slowed last month.

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