GBP: British Pound Powers Ahead Thanks to Service PMI Data
- Last Updated: 02 April 2014
Updated: Our Live coverage shows the UK pound to be in a period of consolidation at the start of April 2014. With the March PMI series missing expectations the GBP has found little by way of impetus. However, all eyes are on the release of the Service Sector PMI on Thursday which should set the near-term tone.
Keep in touch with our Live Coverage Here. For the archived material for the day in question please scroll through please scroll down.
By Rob SamsonDominating proceedings was the release of the Markit Services PMI figure which beat expectations and confirmed the UK's economic outperformance of other developed nations remains intact.
For Thursday the 6th Live Coverage please click here
Today's Live British Pound Exchange Rates.
1.2062
EUR 1.2579
USD 2.0236
AUD 1.8125
CAD 2.2331
NZD 23.5163
ZAR18:38: Barclays predict an ECB interest rate cut
Barclays believe a rate cut at the European Central Bank (ECB) will be delivered tomorrow.
This is outside consensus and if it were to be the case then expect the EUR to come under substantial pressure.
Commenting on the call, Thomas Harjes at Barclays says:
"We expect the ECB to ease monetary policy further tomorrow by cutting its policy interest rates, but it is a very close call given the mixed signals from recent data flow.
"Inflation remained weak and below 1% in February (0.8% y/y), reflecting mostly external factors, including lower energy prices and a stronger euro than a year ago. We see the economic recovery as on track but it is too weak to generate upward price pressures, while internal devaluation and deleveraging in many member states continues."
This is outside consensus and if it were to be the case then expect the EUR to come under substantial pressure.
Commenting on the call, Thomas Harjes at Barclays says:
"We expect the ECB to ease monetary policy further tomorrow by cutting its policy interest rates, but it is a very close call given the mixed signals from recent data flow.
"Inflation remained weak and below 1% in February (0.8% y/y), reflecting mostly external factors, including lower energy prices and a stronger euro than a year ago. We see the economic recovery as on track but it is too weak to generate upward price pressures, while internal devaluation and deleveraging in many member states continues."
16:32: £ € is an important bell-weather for Russian tensions
An interesting note made here by Jean-Pierre Doré at Western Union:
"The pound continues to make gains against the euro as traders fear economic sanctions against Russia will drive capital out of the euro zone.
"This is an important cross to watch in order to gauge market sentiment at present, and should be monitored closely as an escalation in tensions between Russian and Kiev should see the EUR offered across the board."
"The pound continues to make gains against the euro as traders fear economic sanctions against Russia will drive capital out of the euro zone.
"This is an important cross to watch in order to gauge market sentiment at present, and should be monitored closely as an escalation in tensions between Russian and Kiev should see the EUR offered across the board."
15:47: Sterling remains bid after strong run of PMI's
Piet Lammens at KBC Markets explains why the British pound is on the front foot at present:
"Sterling traded with an upward bias today, against the euro, but also against the dollar which was in good shape across the board. The UK manufacturing PMI declined from 58.3 to 58.2, a slightly better than expected outcome. The report marked the start of a nice rally of sterling.
"At first sight this is a bit surprising as the report was quite close to consensus. However, the combination of the three PMI’s published this week confirms that UK growth maintains a reasonably strong momentum.
"This might have supported GBP sentiment. However, technical factors were probably also at work in this sterling short squeeze. Whatever the reason, EUR/GBP drifted to the low 0.82 area. Cable stays close to the 1.67 pivot and even shows some intraday gains despite the overall bid for the dollar."
"Sterling traded with an upward bias today, against the euro, but also against the dollar which was in good shape across the board. The UK manufacturing PMI declined from 58.3 to 58.2, a slightly better than expected outcome. The report marked the start of a nice rally of sterling.
"At first sight this is a bit surprising as the report was quite close to consensus. However, the combination of the three PMI’s published this week confirms that UK growth maintains a reasonably strong momentum.
"This might have supported GBP sentiment. However, technical factors were probably also at work in this sterling short squeeze. Whatever the reason, EUR/GBP drifted to the low 0.82 area. Cable stays close to the 1.67 pivot and even shows some intraday gains despite the overall bid for the dollar."
13:57: £ / $ rallies as ADP misses the mark
Today's most significant data out of the US has fallen short of expectations. This has pressed global markets lower while seeing demand for the USD ease.
US ADP jobs report came in at +139K (Feb) vs +159K expected. Analysts point out that this does not bode well for the big data event of the week - the US Non Farm payrolls. No doubt predictions for the report will be lowered from here.
US ADP jobs report came in at +139K (Feb) vs +159K expected. Analysts point out that this does not bode well for the big data event of the week - the US Non Farm payrolls. No doubt predictions for the report will be lowered from here.
13:41: Will £ $ test short-term support again?
The Cable has picked up quite nicely through the course of today's session, however we are still lacking conviction on this pair. An analysis from Gainsy says:
"GBP/USD corrected lower yesterday after failed to clear the last week's high of 1.6769 before bottomed out this morning at 1.6642 and currently struggles with the 1.6700 key barrier. On the bearish outlook, the recent bull attempt should be contained below the 1.6725 previous resistance/ weekly high, followed by a dip below the recent lows to expose the main short term support at 1.6584."
"GBP/USD corrected lower yesterday after failed to clear the last week's high of 1.6769 before bottomed out this morning at 1.6642 and currently struggles with the 1.6700 key barrier. On the bearish outlook, the recent bull attempt should be contained below the 1.6725 previous resistance/ weekly high, followed by a dip below the recent lows to expose the main short term support at 1.6584."
13:34: Bias is slightly bullish
"EURGBP continues seeing resistance at 21 & 51 dma zone (0.82466 & 0.82660). Bias is slightly bullish above 0.82000, the option offers wait to be activated below 0.82250 today. More offers are seen sub-0.82000." - Ipek Ozkardeskaya at Swissquote.
12:05: Beware the £ $ correction lower
More from Bank of America, this time analysts warn of a decline in the £ to $:
"GBP/USD is elevated at current levels and at risk of a correction lower. We recommend positioning for a sell-off in GBP/USD, now that the GBP supportive M&A order flow (from the Vodafone-Verizon deal) has passed through the market. Our proprietary positioning indicators highlight that equity and bond investors are holding a very overweight sterling exposure.
"This elevated position is now consistent with turning points lower in positioning and therefore asymmetrically skews risk reward toward a weaker currency. US growth has weakened in 1Q, predominantly driven by the extreme cold weather. This has left the USD DXY index weaker and US Treasury yields near the year’s low. As the weather effect passes (there are already some signs of this (with the latest manufacturing ISM report bouncing), we believe the USD will find cyclical support, weighing on GBP/USD.
"GBP/USD is elevated at current levels and at risk of a correction lower. We recommend positioning for a sell-off in GBP/USD, now that the GBP supportive M&A order flow (from the Vodafone-Verizon deal) has passed through the market. Our proprietary positioning indicators highlight that equity and bond investors are holding a very overweight sterling exposure.
"This elevated position is now consistent with turning points lower in positioning and therefore asymmetrically skews risk reward toward a weaker currency. US growth has weakened in 1Q, predominantly driven by the extreme cold weather. This has left the USD DXY index weaker and US Treasury yields near the year’s low. As the weather effect passes (there are already some signs of this (with the latest manufacturing ISM report bouncing), we believe the USD will find cyclical support, weighing on GBP/USD.
11:58: BofA retain bearish stance on EUR/GBP
"Thursday's monetary policy meeting will be a non-event for sterling and therefore the ECB's press conference will be a larger driver for EUR/GBP. We remain bearish EUR/GBP as low inflation and growth in the Eurozone, in contrast to the UK at settling near trend growth, weighs on the currency pair." - Bank of America Merrill Lynch Global Research.
11:41: Euro pound - where the key levels lie
A look at the EUR/GBP shows sideways trade within a broader downtrend. According to Luc Luyet at MIG Bank, these are where the key levels reside:
"EUR/GBP is moving in a short-term horizontal range defined by the support at 0.8191 and the resistance at 0.8267. An initial resistance can be found at 0.8269 (intraday high). A key support lies at 0.8158.
"In the longer term, the technical structure remains negative as long as prices remain below the resistance at 0.8350 (13/01/2014 high). Monitor the support implied by the 61.8% retracement (of the 2012-2013 rise) at 0.8160. Another key support can be found at 0.8082 (01/01/2013 low)."
"EUR/GBP is moving in a short-term horizontal range defined by the support at 0.8191 and the resistance at 0.8267. An initial resistance can be found at 0.8269 (intraday high). A key support lies at 0.8158.
"In the longer term, the technical structure remains negative as long as prices remain below the resistance at 0.8350 (13/01/2014 high). Monitor the support implied by the 61.8% retracement (of the 2012-2013 rise) at 0.8160. Another key support can be found at 0.8082 (01/01/2013 low)."
11:06: Australian dollar tipped to fall vs £
Michael O'Neill at IFXA Ltd sees gains ahead for the £ vs the Aus dollar:
"GBPAUD technicals are bullish and the contrasting economic outlooks point to a higher GBPAUD. GBPAUD has been in a prolonged uptrend since April of last year and is currently near the bottom of a rising channel, intact since October 2013. The correction from the 2014 peak of 1.8820 appears to have run its course with the break through the downtrend line at 1.8660 suggesting that another up-leg is pending.
"The UK is enjoying strong GDP growth with subdued inflation, which is expected to continue for the near term. On Thursday, the Bank of England MPC is expected to leave rates unchanged and therefore provide no statement.
"Today, the Reserve Bank of Australia left rates unchanged. The statement alluded to further currency concerns stating that "the exchange rate remains high by historical standards" while apparently diminishing last month's rising inflation concerns. The statement also warned that resource sector spending will decline significantly while demand for labour remains weak."
"GBPAUD technicals are bullish and the contrasting economic outlooks point to a higher GBPAUD. GBPAUD has been in a prolonged uptrend since April of last year and is currently near the bottom of a rising channel, intact since October 2013. The correction from the 2014 peak of 1.8820 appears to have run its course with the break through the downtrend line at 1.8660 suggesting that another up-leg is pending.
"The UK is enjoying strong GDP growth with subdued inflation, which is expected to continue for the near term. On Thursday, the Bank of England MPC is expected to leave rates unchanged and therefore provide no statement.
"Today, the Reserve Bank of Australia left rates unchanged. The statement alluded to further currency concerns stating that "the exchange rate remains high by historical standards" while apparently diminishing last month's rising inflation concerns. The statement also warned that resource sector spending will decline significantly while demand for labour remains weak."
10:29: Markets turn sheepish
The US dollar is finding a bid at present as markets return to selling mode. GBP/USD gives up post-PMI gains. These are neutral conditions for the remainder of the GBP complex.
10:25: Bullish attempts continue to fail
ICN Financial consider the technical setup behind GBP-USD and its inability to climb:
"All the bullish attempts yesterday failed to take the pair to trade above 1.6775 and resistance level 1.6740 was stable in front of the bullish attempts then the pair dropped again below the Linear Regression Indicator 55 as showing on graph. Stability below Linear Regression Indicator 34 and 55 is negative, meanwhile breaking 1.6600 confirms bearishness and cancels positivity showing on AROON Indicator.
"MACD is currently showing negative signals, therefore we prefer to remain neutral today waiting for an intraday technical signal or for the pair to trade between 1.6600 - 1.6740."
"All the bullish attempts yesterday failed to take the pair to trade above 1.6775 and resistance level 1.6740 was stable in front of the bullish attempts then the pair dropped again below the Linear Regression Indicator 55 as showing on graph. Stability below Linear Regression Indicator 34 and 55 is negative, meanwhile breaking 1.6600 confirms bearishness and cancels positivity showing on AROON Indicator.
"MACD is currently showing negative signals, therefore we prefer to remain neutral today waiting for an intraday technical signal or for the pair to trade between 1.6600 - 1.6740."
09:35: Markets send GBP/EUR higher
The GBP/EUR exchange rate is now 0.25 pct higher on last night's close, and this is pair is the main beneficiary of today's PMI data. Cable is higher by 0.14 pct.
09:29: Services PMI beats expectations
A good outcome from the service sector; United Kingdom Markit Services PMI registered at 58.2 to beat expectations (58) in February. This should maintain confidence in the UK currency as it confirms the strong outperformance of the country over rivals is entrenched.
08:16: Ahead, Services PMI to decide Sterling's fate
The big event for the sterling exchange rate complex lies at 09:30 with the release of the Services PMI reading for February. Analysts expect 58, last month we saw 58.3. Anything substantially lower will likely trigger a fresh round of weakness for the UK currency.
08:09: Where are the key pressure points for the pound?
More from FX Market Alerts, this time on where the key levels lie in the EUR/GBP and GBP/USD on Wednesday morning:
"Some focus on the above record fall in shop price inflation, as BoE starts 2-day BoE MPC meeting today. BoE continues to play down expectations of near term rate hike despite the stronger UK economic data. Lower inflation, despite rising UK house prices, gives room for BoE to pause for now.
"Focus on UK Markit/CIPS Services PMI later today.
"GBP/USD at 1.6657-60, range of 1.6656 to 1.6673 so far today. Offers 1.6670-80/1.6700, interest to sell on rallies now. Bids at 1.6600-10, real money, Asian, M.E. stops below 1.6580.
"EUR/GBP at 0.8239-42, range of 0.8238 to 0.8245 so far, Offers 0.8250-60, eye break of 0.8200 handle, eye BoE/ECB decisions on Thursday. Dovish ECB, not so dovish BoE?"
"Some focus on the above record fall in shop price inflation, as BoE starts 2-day BoE MPC meeting today. BoE continues to play down expectations of near term rate hike despite the stronger UK economic data. Lower inflation, despite rising UK house prices, gives room for BoE to pause for now.
"Focus on UK Markit/CIPS Services PMI later today.
"GBP/USD at 1.6657-60, range of 1.6656 to 1.6673 so far today. Offers 1.6670-80/1.6700, interest to sell on rallies now. Bids at 1.6600-10, real money, Asian, M.E. stops below 1.6580.
"EUR/GBP at 0.8239-42, range of 0.8238 to 0.8245 so far, Offers 0.8250-60, eye break of 0.8200 handle, eye BoE/ECB decisions on Thursday. Dovish ECB, not so dovish BoE?"
08:00: Fastest fall in prices on record
FX Market Alerts consider the overnight BRC data:
"Shop prices in the UK reported deflation for the tenth straight month in February, and at the fastest pace on record, as food inflation dropped sharply and retailers resorted to heavy discounting on apparels and electrical goods, a report from BRC showed Wednesday.
"The February data suggests that consumer price inflation is set to remain low in the coming months, with many of the larger food retailers cutting prices and investing heavily in promotions, BRC said. BRC shop price index -1.4%y/y, after -1% in the beginning of the year. Economists had forecast a weaker decline of 1.1% for February."
"Shop prices in the UK reported deflation for the tenth straight month in February, and at the fastest pace on record, as food inflation dropped sharply and retailers resorted to heavy discounting on apparels and electrical goods, a report from BRC showed Wednesday.
"The February data suggests that consumer price inflation is set to remain low in the coming months, with many of the larger food retailers cutting prices and investing heavily in promotions, BRC said. BRC shop price index -1.4%y/y, after -1% in the beginning of the year. Economists had forecast a weaker decline of 1.1% for February."
00:01: BRC shop inflation plummets
Concern for those hoping for a stronger pound sterling (GBP) this morning as UK shop-floor inflation falls yet further. As midnight it was shown that the BRC Shop Price Index (MoM) (Feb) read at -1.4%, down from last month's -0.1%. Good news for consumers, but this will be duly noted by the Bank of England who will note the soft inflationary environment is another reason to leave interest rates lower for longer.
