Pound Slumps to Six-Week Low on U.K. Services Slowdown

  • Sterling slides against major peers after February PMI data
  • Ten-year gilt yield retreats from highest in more than a week

The pound fell to its weakest level in six weeks after data released Friday showed Britain’s key services sector expanded the least in five months in February, a sign that overall economic growth may falter this quarter.

Sterling fell to levels last seen on Jan. 17, the day Prime Minister Theresa May signaled her plan for the U.K.’s exit from the European Union would prioritize regaining control of laws and immigration at the cost of losing access to the single market.

IHS Markit’s Purchasing Managers’ Index fell to 53.3 from 54.5 in January. While that’s above the 50-mark that divides expansion from contraction, it’s a bigger drop than economists had forecast. The composite PMI data also fell below the estimate and the prior reading.

“The numbers certainly increase the concerns that investors are having that the resistance of the U.K. economy we’ve seen so far is not sustainable against the background of the Brexit uncertainty,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt. “That is certainly a burden for the pound.”

The U.K.’s services slowdown stands in contrast to the euro zone’s where output reached the highest level in almost six years in February as growth in the region’s top four economies accelerated. That is adding to speculation that the Bank of England will likely refrain from tighter policy in the face of Brexit-related uncertainties despite a pickup in inflation.

  • Sterling fell against most of its major peers alongside a drop in 10-year gilt yields after the data
  • GBP/USD drops 0.3% to 1.2228, its sixth straight daily decline; it earlier reached a low of 1.2215, lowest since Jan. 17
    • Resistance: 1.2307, March 2 high; 1.2347, Feb. 7 low; 1.2375, Feb. 28 low
    • Support: 1.2208, pivot S2; 1.2156, 76.4% Fibonacci of Jan. 16-Feb. 2 rise
  • EUR/GBP rises 0.7% to 0.8622
    • Resistance: 0.8645, Feb. 6 high; 0.8682, 61.8% Fibonacci of Jan. 16- Feb. 22 fall
    • Support: 0.8548, March 2 low; 0.8510, March 1 low
  • Standard Bank says its “indicators for sterling/Swedish have turned bearish. They had been neutral from February 22nd”
    • The bank will open a short position at the current rate of 11.10 and set a target at 10.88 and leave a stop at 11.32, head of G-10 FX strategy Steven Barrow writes in a note
(Corrects day of U.K. services data release in first paragraph.)
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