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British Pound Looks Past Slight Markit/CIPS Services PMI Miss

British Pound Looks Past Slight Markit/CIPS Services PMI Miss

Oded Shimoni, Junior Currency Analyst

Talking Points:

- UK’s Markit/CIPS Services PMI down to 55.5, below the 55.6 expected

- Service sector growth in the UK stabilised at a solid pace

- British pound little changed versus other major currencies

See how retail traders are positioning in the majors in your charts using the FXCM SSI snapshot.

The British Pound was little changed versus other major currencies (at the time this report was written) after today’s Markit/CIPS Services PMI dropped slightly below expectations. The diffusion index fell slightly to 55.5 from November’s reading of 55.9. The figure was below economists’ expectations of a 55.6 print. Markit/CIPS composite PMI, which is a combined index of both services and manufacturing, decreased to 55.3, below the prior reading of 55.8 after Monday’s Markit Manufacturing PMI fell below expectations. Readings above 50.0 signal expansion compared with the previous month, and below 50.0 to a contraction.

Markit suggested that service sector growth in the UK stabilised at a solid pace in December, supported by an increase in new business as firms reported successful marketing campaigns. Markit reported that December saw the strongest rise in average input prices in the service sector in five months, mainly linked to wages, but input price inflation remained historically low. This stands in line with Monday’s report in which Markit commented that the ongoing mix of subdued growth and weak price pressures may push any potential rate increase by the BoE later into 2016.

Looking further into the report, Markit had some interesting comments. Markit remarked that the survey signaled a 0.5% growth rate in Q4, which would lead to GDP rising 2.2% in 2015. The services sector helped offset the recent weakness in manufacturing, putting the economy on pace for a 2-2.5% growth in 2016. With that being said, Markit signaled downside risks to economic growth in 2016 as the cost impact of the living wage, government spending cuts, the possibility of a rate hike, weaker global economic growth and the possibility of a ‘Brexit’. However, with the report generally in line with expectations, the British Pound was little changed.

DailyFX Currency Analyst David Song recently said that GBP/USD retail FX crowd are heavily net-long, an extreme DailyFX SSI reading, as the pair retained the downward trend from August.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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