British Pound Forecast: GBP Exchange Rates Soften as Services PMI Disappoints

At the time of writing it is the US dollar that is hogging most of the attention thanks to an outstanding US Non-Farm Payroll release. Expect the USD to dominate proceedings in the FX space for the near-term:

The pound to euro exchange rate is at 1.2618.
The pound dollar exchange rate is at 1.7155.
The pound Aussie dollar rate is at 1.8343.
The pound NZ dollar is at 1.9645.

PS: If you are holding out for higher rates, or want to lock in current rates for protection against further falls, we suggest setting up stop order / option with an independent FX provider. Learn how here.

LATEST: UK Services PMI Below-Par

The big event for GBP today is the release of Markit Services PMI (Jun) data.

Markets were expecting a reading of 58.3, and they got 57.7 which will disappoint those hoping for another surprise.

GBP has been propelled higher this week on the back of the Construction and Manufacturing PMI's which all came in well ahead of expectations.

While the impact on sterling is by no means dramatic we forecast a weaker exchange rate moving into the weekend as traders take profit.

The pound to euro is particularly vulnerable to a softening owing to the strong rally and overbought conditions we are seeing in the pair.

But, technical indicators are forecasting further climbs

Despite an expected softening in the short-term we would point out that longer-term forecasts remain bullish.

The euro pound to exchange rate (EUR/GBP) is forecast to continue moving in favour of the GBP according to Joshua Mahony at Alpari UK:

"The downtrend that we have seen in recent months has been confirmed by the descending highs and lows in the MACD. Should this move lower continue as I expect, the longer term target would be found by projecting the flagpole lower which provides a level of 0.779.

"This is close to the 0.7755 level which is the major low of Mid-July 2012."

Regarding the outlook for the pound dollar exchange rate we hear from ICN Financial who suggest speculators should consider buying the GBP around 1.7140 targeting 1.7185, 1.7265 and 1.7305.

Commenting on the technical forecast ICN say:

"The pair inched higher yesterday, but this rise is the weakest of the three previous trading sessions, which is normal in light of reaching the significant resistance 1.7185 represented in 161.8% correction.

"A break above the referred to resistance is significant to confirm extending the upside move intraday today, and failing to do so could lead to a correctional bearishness.

"Based on AROON and MACD Indicators, we notice that positivity is still valid accompanied by positivity of Linear Regression Indicators. Hence, trading above 1.7080 represented in 127.2% correction is positive and favors breaching the referred to level."

US Non-Farm Payroll data will be key for USD

Thursday sees the release of the US Non-Farm Payroll release - the highlight of the US data calendar.

"It is extremely rare to have the European Central Bank monetary policy announcement and the non-farm payrolls report scheduled on the same day but with U.S. markets closed Friday July 4th, the concurrent timing of these event risks will make for an exciting and active start to the North American trading session," notes Kathy Lien at BK Asset Management.

According to Lien investors have a good sense of what to expect for both the ECB announcement and non-farm payrolls but "if we had to pick the one with the greater chance of catching the market by surprise, it would be the non-farm payrolls report."

Non-farm payrolls on the other hand are expected to rise by 210k in June, which is approximately the same amount as the previous month.  

"Based on the low level of jobless claims and the sharp rise in ADP today, most investors and economists expect further improvements in the labor market but recent disappointments in growth also raise concerns about the willingness of U.S. corporations to hire," says Lien.