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GBP Unchanged After Weakest UK Services PMI in 20 Months

GBP Unchanged After Weakest UK Services PMI in 20 Months

2018-04-05 09:03:00
Justin McQueen, Analyst
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The DailyFX Q2 Outlook for Sterling is now available in our Free Trading Guides.

GBP News and Talking Points

  • UK Services PMI marks weakest rise in 20-months amid snow disruptions
  • Bank of England still on course for a May rate hike

BANK OF ENGLAND STILL ON COURSE FOR A HIKE NEXT MONTH DESPITE SERVICES PMI FALL

UK Services PMI for March fell to 51.7 from 54.5, marking the weakest rise for 20-months. As has been the case for all major PMI releases (Manufacturing & Construction) from the UK this week, snow disruptions played a part in the softer readings. According to IHS Markit, the PMI survey’s collectively signal Q1 GDP at just under 0.3%, down from 0.4% in Q4, which is still markedly below its major counterparts.

In turn, GBPUSD ultimately saw a rather muted reaction and remains well anchored above 1.4000, given that the weather impacted PMI survey’s may suggest only temporary softening (look for a rebound next month), which is unlikely to be enough to detract the BoE from raising the bank rate next month. As it stands market pricing for a 25bps hike in May is just over 70%.

Aside from the PMI releases, recent UK data has been somewhat encouraging with wage growth picking up, while inflation has also looked to have topped out from the peak of 3.1% in November to 2.7% in February. As such, real earnings has narrowed to -0.1% from -0.8%, which is likely to give Bank Of England hawks some encouragement to hike rates in May, particularly given the reduced uncertainty over Brexit after the UK and EU reached on a post-Brexit transition deal.

GBPUSD Price Chart One Minute Time Frame (April 5, 2018)

GBP Unchanged After Weakest UK Services PMI in 20 Months

Chart by IG

Clients Still Short GBP, Outlook Mixed

IG Retail Sentimentdata show 43.7% of traders are net-long with the ratio of traders short to long at 1.29 to 1. In fact, traders have remained net-short since Mar 21 when GBPUSD traded near 1.40037; price has moved 0.3% higher since then. The number of traders net-long is 8.7% lower than yesterday and 11.1% higher from last week, while the number of traders net-short is 7.1% higher than yesterday and 7.5% higher from last week.

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 more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBPUSD trading bias

--- Written by Justin McQueen, Analyst

To contact Justin, email him at justin.mcqueen@ig.com

Follow Justin on Twitter @jmcqueenfx

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