Sterling Live Thurs 4th Oct: GBP at Key Crossroads vs US Dollar, Is GBP Momentum Finally Waning?

The British Pound Sterling (Currency:GBP) is predicted to maintain a positive tone against the US dollar today, however a resurgent Euro has pushed the GBP/EUR rate lower. Look out for Service Sector PMI due for release at 09:28 - can a good reading reignite the push higher by the UK currency? 

Changes in exchange rates since last night's close:

• The British pound / euro foreign exchange rate is 0.8 pct lower at 1.1854.  
• The British pound / dollar foreign exchange rate is 0.33 pct lower at 1.6169.
• The British pound / Australian dollar forex rate is 0.31 pct lower at 1.7235.
• The British pound / New Zealand dollar foreign exchange rate is 0.12 pct lower at 1.9716.

(Note that these are wholesale inter-bank quotes. Your bank will affix a discretionary spread when delivering a retail offer to you. However, an independent FX provider will guarantee to undercut your bank's offer and deliver you up to 5% more FX. Please learn more here.)

17:00: No data releases tomorrow, GBP sell-off could extend

The problem for sterling is that there are no data events due out tomorrow that could arrest this correction lower.

US Non-Farm Payrolls were due out of the US tomorrow, but the shutdown has meant this is now cancelled.

So technical considerations will be the order of the day for sterling.

16:50: Sterling under considerable pressure against the euro

It looks like we are seeing quite a squeeze higher in the Euro to Pound exchange rate at present as those shorting the Eurozone currency are caught with their pants down.

The rate has risen 0.78 pct to hit 0.8436 in late afternoon London.

GBP/EUR is thus at 1.1856.

15:00: A GBP/USD buy strategy gone wrong

Matt Weller at GFT appears to have been caught short by the gravity behind today's decline in the British pound.

Earlier he had called a buy on GBP/USD:

"The GBP/USD dipped in today’s late Asian session to test the 1.6200 handle, but buyers stepped in at that level and rates have since turned higher. For today, all eyes will be on previous resistance at 1.6255 – if we break through that level, a quick run up to the key 1.6300 level is likely ahead of the weekend."

The woes of currency forecasting

14:48: Is the Royal Pair going to extend its recovery?

ICN Financial Markets are gearing up for an extension of today's euro/pound recovery.

Find out where the entry and stop loss levels are tipped to lie.

14:03: Policy makers have underestimated effectiveness of accommodative policy

For us, Chris Williamson, Chief Economist at Markit, gives today's most poignant remarks.

Williamson says the sheer strength of the PMI data series shows policymakers may have underestimated the impact that ultra-accommodative stimulus is having upon the economy.

Makit's PMI data points to strong job creation in the UK economy (remember unemployment at 7% is a key touchstone for pro-sterling monetary tightening and interest rate raising decision making at the Bank of England).

Williamson notes:

"The recent strong growth in output has prompted a  growing number of firms across the private sector to take on extra staff. The all-sector PMI Employment Index rose sharply in September, to reach its highest since August 2007.

"Job creation accelerated in the manufacturing, services and construction sectors.

"Strong employment growth looks set to continue, as the manufacturing and services PMIs collectively  showed the level of outstanding business growing at  the sharpest rate in at least 14 years in September.

"The PMIs are not alone in signalling a strong upturn in  the labour market. Recruitment agencies reported the  strongest growth of demand for staff for over six years  in August, with revenues from placing temporary workers rising at the fastest rate for 15 years."

We ask: Will Governor Carney and the Bank of England have to seriously consider the possibility of raising interest rates a great deal sooner than they expected? This would underpin the next, significant, leg higher in the GBP rally.

13:18: US debt ceiling woes ahead, how will GBP react?

The US is in shutdown mode, however across the horizon another crisis lurks.

"Based on evidence from the US Treasury markets, particularly in T-Bill rates, we are only starting to price-in the risk of lawmakers being unable to increase the debt limit in time," says Nomura  foreign exchange strategist Jens Nordvig.

Nomura say, as was the case the last time we were faced with this problem, the US dollar will likely fall.

Will the GBP automatically gain as a result? Don't bet on it says Nordvia:

"The recent EUR (and to some extent GBP) strength is driven by equity flows from the US. A US-centric risk-off episode could be less positive for European currencies than the market would expect therefore."

JPY and CHF are predicted to outperform strongly as is the NZD.

11:54: Key moments for pound vs dollar (and broader sterling direction)

The pound is at a key crossroads against the dollar; and thus sterling moment in general as this headline rate often dictates broader GBP direction.

Joshua Mahony at Alpari UK notes:

"The GBPUSD pair has seen some volatility this morning after the UK services PMI fell marginally to 60.3. The resulting price action has brought us to a key crossroads, where the direction of the pair is likely to be determined.

"The 15 minute chart shows that the breakout below the key ascending trend-line failed to hold as some feared the PMI figure was likely to be lower than was released following poor manufacturing and construction figures this week.

"The pair is set to break out of this current triangle one way or another and with it could point to a direction for the markets. A break to the downside seems more likely given this pair is majorly overbought on the daily time-frame."

11:02: Pound overbought and looking tired vs US dollar

The pound sterling hasn't been able to capitalise on today's Services PMI beat.

Luc Luyet at MIG Bank says the momentum behind GBP could be weakening:

"GBP/USD is in a short-term rising trend, whose support is at 1.6129 (see also the short-term rising trendline). However, the recent inability to move higher than Tuesday's high suggests a potential weakening short-term momentum."

"In the longer term, prices are close to the strong resistance area between 1.6302 (30/04/2012 high) and 1.6381 (see also the long- term declining trendlines). Given the increasing overbought conditions, we would be medium- term cautious on GBP/USD, as it has already priced in a lot of positive news." See our latest update for more views on the US dollar rates today.

09:36: British pound in positive reaction to PMI data

A recovery by the British pound following today's data release. However, note that GBP/EUR has hardly moved - a good indication of the underlying Euro strength still dominating currency markets.

09:33: UK economy tipped to be growing at fastest rate since pre-crisis days

Commenting on today's strong PMI sector growth, Chris Williamson, Chief Economist at survey compilers Markit says:

“Businesses in the vast service sector reported an ongoing growth spurt in September, expanding at a  rate just shy of August‟s recent high. The buoyant  data follow similar upbeat surveys of the  manufacturing and construction sectors, and collectively the surveys suggest the economy will  have expanded by as much as 1.2% in the third  quarter; its fastest growth rate since the pre-crisis days of 2007."

09:30: Services PMI beat expectations

So no hat-trick for disappointing PMI data in October.

Services PMI has read at 60.3, better than the predicted 60, and just below last month's 60.5.

08:51: Outlook for the British pound today

Geoffrey Yu points out that for EUR/GBP the possibility of a return to form for the pound sterling still remains:

"With the trending and momentum tools pointing lower, the risk is for more downside. Support is at 0.8333 ahead of 0.8285. Resistance is at 0.8402 ahead of 0.8471."

On the GBP/USD outlook Emmanuel Ng at OCBC Bank says: "Cable may continue to creep higher in concert with the majors in the near term with immediate resistance expected on approach of 1.6260 while any breach below 1.6200 may see a retracement back towards 1.6170."

Commenting on GBP/USD Yu says: "With the pair extending the bullish pattern of higher highs/low, any downside will be limited. Support is at 1.6163 ahead of 1.6072. Resistance is at 1.6260, a break above which would open the critical 1.6381."

08:50: The euro bears have been frustrated

Geoffrey Yu on the pro-euro sentiment of the past 24 hours:

"ECB President Draghi frustrated euro bears on Wednesday by refusing to dwell too much on the issue of shrinking excess liquidity. Denying even that there was even an actionable link with front-end rates (and implicit tightening), the prospect of continued liquidity withdrawal, at least in the short term, will remain a barrier against euro downside."

08:48: Pound still losing ground to an improving euro

The story over the past 24 hours on global currency markets has been the outperformance of the euro.

Yesterday we saw a number of pro-EUR events (ECB and Italian political progress) conspire to sent the pound to euro exchange rate back towards the 1.19 level.

More on this here.

08:30: Soft start for British Pound on Wednesday, ahead we have service sector PMI data

GBP is down across the board on Thursday morning. At 09:28 currency markets digest the latest and last entry of the October Markit PMI Series.

Services PMI data is forecasted to come in at 60, down from last month's 60.5.

It is worth noting that both the Construction and Manufacturing readings have had little impact on Sterling so the importance of the Services reading could be diminished when compared to previous months.

We expect another slight miss, as was the case with both Manufacturing and Construction.