GBP Sapped by Weaker-Than-Expected UK Services PMI
- UK Services weaken, job creation remains subdued.
- Prices charged hit an August 2008 high.
- Brexit woes keep the lid on GBP for now.
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The seasonally adjusted IHS Markit/CIPS UK Services PMI fell to 53.8 in November, from 55.6 in October, and below expectations of 55.0. The latest reading signalled a solid increase in service sector business activity, but the rate of expansion was slightly slower than seen on average in 2017 to date.
According to Chris Williamson, chief business economist at IHS Markit, “Slower service sector growth comes as a disappointment after the improved performances of both manufacturing and construction in November. However, despite the weaker service sector expansion, the latest survey data indicate that the economy is on course to enjoy robust growth in the fourth quarter. The survey data are so far consistent with the economy growing at a quarterly rate of 0.45% in the closing months of 2017.”
The PMI surveys pointed to the largest monthly increase in average prices charged for goods and services since August 2008; a time when oil prices soared just before the global financial crisis. Rising oil prices were again to blame in November, added Williamson.
Last week, the UK Manufacturing PMI surprised on the upside, beating expectations. The reading of 58.2, from an upwardly revised 56.6 in October, was a 51-month high, with capital spending, especially in the domestic market, showing signs of renewed vigour, according to data provider IHS Markit.
GBPUSD has stabilized Tuesday after falling sharply in the last 24 hours after Brexit negotiations took a turn for the worse. The market had expected the UK and EU to agree that talks could progress to the second round, including future trade agreements, but a last minute intervention from the DUP scuppered those plans. The DUP, whose 10 votes provide the Conservative Party with a ruling majority, said that they would not support plans to keep Northern Ireland aligned with the EU.
Chart: GBPUSD One Hour Timeframe (November 23 – December 5, 2017)
IG Client Sentiment data show 41.0% of traders are net-long with the ratio of traders short to long at 1.44 to 1. In fact, traders have remained net-short since Nov 21 when GBPUSD traded near 1.32465; price has moved 1.3% higher since then. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBPUSD trading bias.
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--- Written by Nick Cawley, Analyst
To contact Nick, email him at email@example.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.