- The British Pound (GBP) rose against the Euro (EUR), the US Dollar (USD), and other major currencies after the announcement that the British economy showed robust growth in January.
- According to forex market trading, the GBP/USD price moved higher, reaching towards the resistance level at 1.2775 before settling around 1.2715 at the time of writing the analysis.
- As mentioned earlier, the GBP demonstrates notable resilience against the recent strength of the US dollar.
Furthermore, a survey by the S&P Global Purchasing Managers' Index indicated that the dominant British service sector in the economy expanded with a reading of 53.8, up from 53.4 in December and exceeding expectations of 53.2. Moreover, the manufacturing Purchasing Managers' Index recorded a reading of 47.3, still indicating contraction but higher than December's 46.2 and consensus expectations of 46.7. The Composite Purchasing Managers' Index, which balances the results to provide a more representative view of the overall economy, stood at a reading of 52.5, up from December's 52.1 and above the consensus of 52.2.
Ultimately, the clean sweep of figures that surpassed consensus helped push the GBP/EUR exchange rate to its highest level in four months at 1.1715. The exchange rate received support from the Purchasing Managers' Index readings in the Eurozone, which came below expectations and indicated economic contraction. Commenting on the factors contributing to the strength of the pound, Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, stated, "The S&P Global/CIPS Purchasing Managers' Index for January suggests that the economy is quickly escaping the mild recession it entered in the second half of last year."
Recently, the results indicated that the British economy is firmly in expansionary territory, reducing the need for the Bank of England to provide support through interest rate cuts. Moreover, the analyst said, “The PMI data remains consistent with the MPC’s ability to cut interest rates this year, but at a more gradual pace than investors currently expect,”. The analyst added, “We are still looking at a 75-basis point cut in the bank interest rate this year, slightly less than the 100 basis points indicated by the Statistics Office.”
Overall, the possibility of UK interest rates remaining high for a longer period supports UK yields while supporting demand for sterling. For his part, Christopher Wong, an analyst at OCBC Bank, says: “We are still adhering to a moderate upward path for the pound, as the Bank of England is likely to keep interest rates restricted for a little longer.”
Meanwhile, Standard & Poor's Global reported that the rise in service sector activity was the fastest since last May, despite the decline in manufacturing production to the greatest extent in three months. Also, the survey provides early evidence that it would be rash for the Bank of England to signal a policy shift given widespread reports of rising shipping costs in the wake of the Red Sea unrest. Worryingly, the survey also indicates that private sector companies recorded the largest rise in input costs since August 2023.
Also, domestic inflationary pressures are likely to remain strong when companies report improving demand conditions and higher levels of optimism about the business outlook. Moreover, elastic demand will support employment, wages, and inflation. January data also indicated a modest rise in private sector employment, ending a four-month period of job losses. Furthermore, the rise in employment levels reflected a recovery in employment in the service sector, which survey respondents linked to the start of new projects and expected demand growth. Recently, UK businesses were more optimistic about the growth outlook for the next 12 months, with the confidence score the highest since May 2023.
GBPUSD Expectations and Analysis Today:
According to the performance on the daily time frame chart, the price of the GBP/USD pair is still in an ascending mode and the resistance 1.2775 still supports the bulls’ control. Technically, moving towards the resistance 1.2850 will strengthen the current trend and at the same time increase expectations for the future of the psychological resistance 1.3000, respectively. On the other hand, over the same period of time, a downward shift in the trend will not occur without the price of the sterling dollar moving towards the support level of 1.2600. Otherwise, the general trend will remain upward.
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