When is the UK Services PMI and how could it affect GBP/USD?
The UK Services PMI OverviewThe United Kingdom (UK) docket has the preliminary Purchasing Managers’ Index (PMI) data for February to be released by the S&P Global on Friday, later this session at 09:30 GMT.
S&P Global Services PMI is expected to come in at 53.6, inching down from 54.0 recorded in the previous month.
How could it affect GBP/USD?GBP/USD may struggle if the S&P Global Services PMI meets expectations, potentially offsetting support from strong UK Retail Sales as services activity is projected to slow in February.
The UK Retail Sales climbed 1.8% month-over-month (MoM) in January, exceeding 0.4% increase in December and 0.2% expected in the reported month. The core Retail Sales climbed 2.0% MoM in January, compared with the previous rise of 0.3%. This figure came in above the market consensus of a 0.2% increase.
The GBP/USD pair also faces challenges as the US Dollar (USD) remains stronger following the Federal Open Market Committee (FOMC) Minutes for the January meeting. The report has reignited the likelihood of potential Fed rate hikes should inflation remain persistent. While most policymakers supported keeping rates unchanged, only a few favored a cut, and officials indicated they would consider easing if inflation moderates as anticipated.
Technically, the GBP/USD pair steadies after recovering daily losses, trading around 1.3460 at the time of writing. The technical analysis of the daily chart indicates an emerging bearish bias as the pair is positioned below the ascending channel pattern. The initial support is seen at the two-month high of 1.3344. On the downside, the primary barrier lies at the 50-day EMA of 1.3524, followed by the nine-day EMA at 1.3548.
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
How do the decisions of the Bank of England impact on the Pound Sterling?The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
How does economic data influence the value of the Pound?Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
How does the Trade Balance impact the Pound?Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
