The British pound sterling (Currency:GBP) is met with important data from the outset with Monday morning seeing the release of Service PMI data. We note a strong start for sterling with gains coming against all the majors we regularly quote.

Highlights:

@9:30: Another great PMI reading, GBP pushes higher.
@10:50: Scoper for further GBP/EUR gains.
@14:23: Wednesday could trigger fresh GBP losses.

16:45: Tuesday brings with it Industrial Production and Manufacturing Production data

More data out of the UK economy tomorrow - currency markets will be looking for further signs of economic recovery as was reflected through the recent PMI series.

Consensus on on Industrial Production is for growth of 0.6 pct, an improvement on -2.3 pct previously.  

Manufacturing Production estimates are for growth of 0.9 pct, up on -2.9 pct previously.

At 15:00 the NIESR will give their GDP estimate.

15:05: Sterling strength remains

The UK currency is settling at post-PMI highs.

• GBP/EUR = 0.5 pct up at 1.1578.
• GBP/USD = 0.2 pct up at 1.5324.
• GBP/AUD = 0.32 pct up at 1.7235.
• GBP/CAD = 0.3 pct up at 1.5936.
• GBP/NZD = 1.32 pct up at 1.9776.

Please Note: The above are wholesale spot market quotes. Your bank will affix their own discretionary spread. However, an independent FX provider is able to access the wholesale markets and offer you currency at a lower spread, thus delivering you more currency. Please learn more here.

14:23: A trigger for GBP weakness - targeting unemployment around 6 pct

Paul Robson at RBS tells us that that there remain downside risks for GBP, and these emerge on Wednesday with Carney's first inflation report.

According to Robson should the Bank of England look to target the unemployment rate, around the 6% mark, then GBP will likely tumble:

"GBP will be particularly sensitive to what the intermediate threshold variable is and where the trigger level is placed.

"The most obvious variable for the MPC to target would be the unemployment rate. The positioning of the threshold rate will indicate where the central bank believes the NAIRU (the Non-Accelerating Inflation Rate of Unemployment) is, as well as the MPC's tolerance to higher inflation.

"Placing the unemployment target close to the NAIRU (which is probably around 6%) would show that the MPC has changed its reaction function (rates lower for much longer) are playing fast and loose with inflation over the medium term.

"In doing so, the MPC would be telling the market that they'll be keeping monetary policy accommodative right up to the point that the output gap is closed. Normally policy would be expected to be at neutral (base rate at 5% not 0.5%) at such a point in the business cycle.

"This would be a negative GBP outcome because low yields would suggest that the currency will be seen as a funding currency and higher inflation on a relative basis suggests the nominal exchange rate needs to fall to keep the real exchange rate constant."

12:30: Be prepared for a strong GBP rally should Bank of England prove more hawkish then expected

Be aware that there are stack of investors still betting against the pound.

At some stage these positions may have to be closed - this will likely cause a fresh spike in GBP.

Lloyds Bank Research say:

"Net GBP short positions were little changed last week. While we have seen better numbers from the UK of late, we suspect GBP bears will hold on to positions ahead of the key event this week, the Quarterly Inflation Report on Wednesday.

"The Bank of England is expected to announce the assessment of forward guidance alongside the Bank's latest growth and inflation projections. It is widely expected that forward guidance will extend market expectations of monetary policy accommodation, in keeping with a ‘lower for longer’ stance. The threshold parameter to which this will be linked and the exact form of guidance remains unclear.

"Market concerns that additional stimulus could still be announced should continue to weigh on GBP ahead of Wednesday."

11:14: GBP/USD predicted at 1.5350, UK economy rebounding strongly

Boris Schlossberg at BK Asset Management is predicting further gains in GBP/USD from here:

"Cable rose to clear the the 1.5350 level and now stands ready to attack the key 1.5400 figure which has been a major point of resistance over the past several weeks."

And regarding the next event risk for sterling (Wednesday's BoE Inflation Report) Schlossberg says:

"So far Mr. Carney has shown little inclination to increase QE or lower rates and today's very strong results demonstrate unequivocally that the UK economy is rebounding strongly without any additional stimulus."

10:50: Scope for British Pound gains versus the Euro

Andy Scott, premier account manager at HiFX on GBP/EUR:

“Despite sterling having been the target of selling recently due to speculation over the Bank of England’s new Governor’s plans regarding monetary policy, it continues to find buying interest due to positive economic signs. Wednesday’s quarterly inflation report will make for interesting viewing to get the Bank’s take on the improving picture.

"Whilst we would caution against not expecting any more quantitative easing by BoE that could still weaken sterling further; we feel it has plenty of room to strengthen in line with the economy, particularly against the euro.”

10:00: Sterling powers higher

A look at the latest spot rates half an hour following on from today's great Services PMI release:

• GBP-EUR is 0.35 pct up at 1.1558.
• GBP-USD is 0.4 pct higher at 1.5355.
• GBP-ZAR is 0.27 pct higher at 15.0930.
• GBP-AUD is 0.33 pct up at 1.7235.
• GBP-NZD is a percent up at 1.9711.
• GBP-CAD is 0.37 pct up at 1.5952.

Please Note: The above are wholesale spot market quotes. Your bank will affix their own discretionary spread. However, an independent FX provider is able to access the wholesale markets and offer you currency at a lower spread, thus delivering you more currency. Please learn more here.

9:24: Services PMI in strong gain, GBP stronger

A great reading from today's big economic event:

"Wow, very strong UK service sector PMI jumps to 60.2, up from 56.9 in June," say Forex.com in the wake of the release of July's PMI data.

Analysts were looking for 57.2.

Forex.com say: "This is the highest service sector PMI since the  end of 2006... GBP stronger."

8:45: GBP on the front foot

The British pound sterling (Currency:GBP) is looking firm on Monday morning:

The Pound to Euro exchange rate is 0.02 pct up on Friday night's closing rate at 1.1520.
The Pound to US dollar exchange rate is 0.09 pct higher at 1.5309.
The Pound to Australian dollar exchange rate is 0.11 pct higher at 1.7198.
The Pound to New Zealand dollar exchange rate is 0.6 pct higher at 1.9622.

Please Note: The above are wholesale spot market quotes. Your bank will affix their own discretionary spread. However, an independent FX provider is able to access the wholesale markets and offer you currency at a lower spread, thus delivering you more currency. Please learn more here.

8:21: UK Services PMI in a little over an hour

Monday starts off on a bang. Remember last week's great construction PMI release? The question now is whether the all-important services sector can also surprise us.

Craig Erlam from Alpari UK says:

"The UK services PMI is expected to improve again in July, hitting 57.4, up from 56.9 in June. As with the data out of the eurozone, the UK data has been extremely encouraging over the last four or five months. As I’ve pointed out previously though, with the global recovery still very fragile, we shouldn’t get carried away with this, although the signs are positive."

8:15: Forex markets to focus on PMI's

The key driver for the British pound and Euro early on Monday will be the release of PMI data.

Craig Erlam at Alpari says:

"The economic calendar isn’t necessarily looking as full as last week, but there’s still plenty for the markets to get their teeth stuck into, starting this morning with the release of the services PMIs in the eurozone for July. While many of these are revised figures, we do regularly see some significant revisions which can have a real impact on the markets.

"Recent surveys out of the eurozone have been very encouraging, with the majority either making the move into growth territory or coming very close. This is expected to remain the case today."

8:13: Overnight, tentatively improved Industrial Trends data released

Further confirmation of the positive trajectory being seen in the UK economy from the CBI Industrial Trends Survey which was released at midnight:

The UK CBI Industrial Trends Survey revealed that orders contraction slowed down to -12 in July, from -18 registered in June. This result is in line with consensus.

"Despite another disappointing quarter for small and medium-sized manufacturers, with output continuing to fall, optimism about the general business situation has risen for the first time since spring last year," said Anna Leach, Head of Economic Analysis at CBI.

"But manufacturers remain concerned about the impact of political and economic conditions overseas on external demand, reflecting on-going uncertainty about the global economic outlook," Leach noted.