Pound Climbs First Time in Three Days as Services Beat Forecasts

  • Sterling strengthens versus all but one of its G-10 peers
  • Brexit impact ‘yet to physically hit’ economic data: Mizuho

Credit Agricole Sees Pound Staying Close to Lows

The pound rose for the first time in three days against the dollar as U.K services grew faster than economists expected in March.

Sterling also strengthened for the first time this week versus the euro after data showed that IHS Markit’s Purchasing Managers Index for services rose to 55 from 53.3 in February. That’s above the key 50 level that divides expansion from contraction and compares with median forecast of 53.4 predicted by analysts in a Bloomberg survey.

Sterling posted its first quarterly gain versus the U.S. currency since mid-2015 in the first three months of this year, supported not just by the faltering dollar, but also as economic data in the U.K. were more resilient than initially expected after Britain’s vote last year to leave the European Union. However, doubts are emerging on whether the economy can withstand the political uncertainty the Brexit negotiations will bring. The services PMI follows Markit surveys this week that showed both manufacturing and construction growth cooled in March.

  • U.K. services PMI “is probably more important for the U.K. than any other developed nation,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “The Brexit impact is still yet to physically hit. There’s some room on the downside for cable and that’s in part because the full impact of Brexit uncertainty is yet to really hit. It needs to be physically manifested and we’re not there.”
  • The services data were “clearly positive” for the pound, said Georgette Boele, a currency strategist at ABN Amro Bank NV in Amsterdam. Still, the ranges in cable “are getting smaller. In GBP/USD the short-term range seems to be 1.24-1.26. Investors are positioned for GBP weakness, so it’s difficult to push it lower, you really need a shocking event. On the other hand if GBP weakness is not coming soon there will be investors losing confidence in the trade and close it.”
  • GBP/USD +0.3% to 1.2475, after falling 0.9% in the previous two days. Resistance at April 4 high of $1.2496 and April 3 high of $1.2567; support 1.2403, March 30 low
    • Options expiry at 1.2450 (GBP515m)
  • EUR/GBP -0.2% to 0.8561, after advancing more than 1% in the first two days of this week 
    • Options expiries at 0.8550 (EU230m), 0.8650 (EU216m)
  • For more major FX technicals, click here
  • Yield on 10-year gilts rose 1bp to 1.08%
  • Benchmark U.K. gilt yields have fallen to levels just shy of 1 percent, but the rally may well be on its last legs

— With assistance by Vassilis Karamanis

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