British Pound (GBP) LIVE: Sterling in Steady Recovery After Services PMI Delivers a Blow

Live to the minute rates:

• GBP vs Euro:
  1.2058
• vs Dollar:
  1.2541
• vs Australian Dollar:
  2.0106
• vs Canadian Dollar:
  1.8004
• vs New Zealand Dollar:
  2.2185
• vs Rand:
  23.4157

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KBC Markets on today's GBP performance:

"Sterling was also under pressure in Asia this morning as cable dropped below the 1.64 barrier. The European EMU PMI’s had hardly any impact on EUR/GBP trading. The UK services PMI declined unexpectedly from 60.0 to 58.8. This is far from a disaster, but sterling lost temporary ground, both against the dollar and the euro. Cable filled offers in the 1.6440 area. EUR/GBP jumped to the 0.8330 area. 

"However, the setback in sterling was again temporary in nature. Both EUR/GBP and cable reversed the post PMI moves."

The British pound has continued to gain in confidence through the course of today ensuring much of the damage witnessed in the morning session has been largely erased.

GBP/CAD has made some strong gains - the exchange rate is now 0.38 pct higher at 1.7531 after hitting a low of 1.7355 earlier.

GBP/EUR is now 0.18 pct lower at 1.2061; the rate had earlier challenged 1.2.

Matthew Weller at GFT tells us he is backing the GBP to bounce further against the USD in the short term:

"Like its mainland rival, the GBP/USD also showed signs of bouncing after a selloff to start the week. From a candlestick perspective, the GBP/USD just put the finishing touches on a relatively large 4hr Piercing Candle. This candlestick pattern shows a shift from selling to buying pressure and may mark a near-term low in the pair. Any bounces that do emerge could find resistance at the 61.8% or 78.6% Fib retracements in the lower-1.6400s."

Kathy Lien at BK Asset Management tells us where she is forecasting the EUR/GBP, GBP/JPY and GBP/USD in 2014:

"Between the outperformance of the U.K. economy versus the Eurozone economy and the divergence in BoE/ECB monetary policy direction, we expect EUR/GBP to test 80 cents in the coming year.

"While the key support level for the pair is the 2012 swing low of 0.7756, we don’t expect this level to be tested unless the Bank of England raises rates in 2014 (which is very unlikely) or the ECB cuts rates to negative levels (possible but not probable).

"Buying GBP/JPY on the other hand is both a U.S. recovery and global growth trade. Short-term resistance is at 175 but the more significant resistance level is 180.

"Finally, with the BoE holding monetary policy steady as the Fed tapers, higher U.S. rates should lend support to the greenback, offsetting demand for sterling. This means we expect GBP/USD to trade in a 1.67 to 1.60 trading range in the coming year."

Bank of America Merrill Lynch analyst Nick Bate reckons the ECB is likely to keep policy on hold in 2014 - a pro-EUR view:

"We expect the ECB to remain on hold at their meeting this week and for most of 2014, with their Comprehensive Assessment (CA) of the banking sector potentially posing more risks of prompting action through the year in the form of another LTRO should liquidity conditions deteriorate than the immediate GDP growth outlook."

The Euro is enjoying a bounce against the pound today, however the technical outlook continues to favour the GBP.

Geoffrey Yu at UBS says:

"With the MACD firmly below its zero line, there’s potential for extension of the bearish trend. Support is at 0.8253, a break below which would expose 0.8160. Resistance is at 0.8346."

The uptrend in GBP/USD remains intact… for now.

Luc Luyet at MIG Bank gives his latest forecast for GBP/USD:

"GBP/USD has declined sharply after posting new highs. Supports can be found at 1.6305 and 1.6220. A break of the resistance at 1.6474 is needed to improve the short-term technical structure.

"The break of the major resistance area between 1.6381 and 1.6466 favours a further long-term rise towards the strong resistance at 1.7043 (05/08/2009 high). However, monitor the recent bearish reversal near the resistance at 1.6618 (19/08/2011 high). A break of the support at 1.6220 would negate the positive outlook implied by the recent new highs. Another key resistance lies at 1.6747 (28/04/2011 high)."

Deutsche Bank, in their latest exchange rate forecast note, advise they are increasingly bullish on GBP:

"We are turning less bearish on GBP and meaningfully raising our sterling forecast profile for the coming year. The driver has been the large upside surprise in the growth outlook this year, in turn providing belated interest rate and flow support to the pound."

The British pound has taken a punch from today's below-par Services PMI. However, Markit are upbeat with regards to the year ahead for the UK's Services Sector:

"The positive trends in activity and new business are widely expected to continue in 2014. Optimism amongst the survey panel regarding activity over the next 12 months was at its highest since March 2010, with well over 50% of respondents forecasting growth. Investment in capacity, new products and marketing platforms was also noted as a reason to be confident heading into 2014."

Full release from Markit on today's disappointing PMI data found here.

Sterling is deep in the red as today's only hope for a respite to recent selling pressure only throws fuel onto the flames.

UK PMI Services came in at 58.8 versus 60.0 prior and 60.3 expected.

The correction in sterling could run yet further.

"The Cable started the week downbeat. GBPUSD sell-off accelerated as the 21-dma (1.6399) was broken on the downside. Technical indicators warn of deeper correction for a close below 1.6400. First level of support should come into play at 1.6317 (fibo 38.2% on Nov 13’ – Jan 14’ rally), while light stops are seen below 1.6300/1.6280." - Swissquote Research.

"There are a number of releases from the UK this week, BoE MPC meeting, industrial production and trade data. However, with no policy change expected from the BoE and these data largely second tier, GBP/USD will likely be mainly influenced by USD sentiment given key releases from the US this week." - Lloyds Bank Research.

A poor start for the British pound (GBP) on Monday morning; the UK currency is in the red against the majority of major currencies. As far as we can tell at this stage the move lower is correctional - a strong run has run out of steam.

Services PMI will be a focus. While manufacturing PMI fell in December, more than expected, the market is expecting a modest rise in Services PMI to 60.3.

"Our economists view that given the sharp drop in November, risks are to the upside today. Should we see a stronger outturn this will likely provide some respite for GBP/USD which has been under pressure since the start of the new year." - Lloyds Bank Research.