Pound Falls as Services PMI Shows Loss of Momentum in Economy

  • Sterling heads for first weekly loss since early January
  • Decline brings supports at 100-DMA, Jan. 31 low into focus

The pound extended its first weekly loss since early January after data showed that the services sector, one of the main engines of the British economy, is growing at a slower pace than expected.

Sterling dropped against most of its major peers, falling 0.3 percent to $1.2495 as of 10:32 a.m. London time. It earlier touched $1.2476, bringing it in sight of support at its 100-day moving average of $1.2466 and the Jan. 31 low of $1.2413.

Markit’s headline Purchasing Managers’ Index, while still signaling expansion, fell to a three-month low. The index was accompanied by softer growth in new business and slower hiring. The data comes a day after the Bank of England highlighted there’s more slack in the economy than previously thought, thwarting expectations that a rate hike was imminent.

  • “Sterling suffered severe losses yesterday against all major currencies as the market had geared up for a rather hawkish BOE, which in the end it did not get,” analysts at UniCredit wrote in a note to clients
  • “Going forward we expect sterling to remain under pressure, although GBP/USD sell-offs may be somewhat limited on account of the weak dollar. Sterling bears would be better off to express their view via long EUR/GBP and/or short GBP/AUD positions”
  • Bank of England Governor Mark Carney and fellow policy makers see price growth breaching their 2 percent goal as early as this quarter, though they said there’s more slack in the economy than previously thought; see story here

TECHNICAL LEVELS

  • GBP/USD -- Key day reversal lower tempers the bullish stance although bulls still hold upper hand while above 1.2413
    • 3rd resistance: 1.2699-1.2706, 26-wk EMA, Feb. 2 high
    • 2nd resistance: 1.2614, intraday resistance
    • 1st resistance: 1.2584-93, daily pivot, Feb. 2 mid open/close mid-price
    • 1st support: 1.2466, 100-DMA
    • 2nd support: 1.2413, Jan. 31 low

ECONOMIC DATA: (All times U.K.)

  • 09:30 Jan. Markit/CIPS UK Services PMI, actual 54.5, est. 55.8
  • 09:30 Jan. Markit/CIPS UK Composite PMI, actual 55.5, est. 56.0
  • 09:30 Jan. Official Reserves Changes $810m, prior $29m
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