UK service sector activity rebounded at a faster clip than expected in February, in the latest piece of upbeat data.
UK services roared back to life after the Omicron hit to the economy proved to be contained and short lived.
The services PMI rise 6.7 points to 60.8, up from 54.1 in January and well ahead of the 55.5 forecast. In addition to an impressive rise in activity, costs also rose at the second fastest clip on record. In response services firms were hiking their prices, suggesting that any easing in inflationary pressures were still a long way off.
Inflation rose to 5.5% in January and is expected to keep rising to 7.25% in Spring. Meanwhile, the UK jobs market and consumer spending remain strong. Pressure is mounting on the BoE to act again to raise interest rates, after raising rates in December and February.
The end of Covid restrictions coming
Covid disruptions appear to be a thing of the past as, later today, Prime Minister Boris Johnson plans to announce the end of Covid restrictions, under the new “living with Covid strategy”. This should mean that the UK economy can accelerate ahead faster than those economies still experiencing restrictions, which should be good news for the pound.
Russia fears limit GBP gains
In addition to data and domestic politics the Russia, Ukraine uncertainty is weighing on riskier assets and currencies, limiting gains in the pound. Whilst optimism surrounding a Biden – Putin summit lifted risk sentiment in early trade, Russia has since said that it hasn’t confirmed the meeting – leaving the markets in a state of limbo amid ongoing uncertainty.
The US stock markets are close for a public holiday, so liquidity in the USD is expected to be thin.
There is no US economic data due to be released.
Where next for GBP/USD?
GBP/USD extended its rise from 1.3485 the February 15 low, before once again running into resistance at 1.3640. The pair has made several unsuccessful attempts to break above this level, before sellers have come back in to push the price lower.
The uptrend on the 4 hour charts remains in place, as the pair continues to trade above the multi-week rising trend line.
Sellers will be looking for a fall below 1.3560 the confluence of the 50 sma and the 100sma to negate the uptrend. A break below here opens the door to a deeper selloff towards 1.35, below where sellers could gain momentum
Meanwhile, buyers will be looking for a breakout above 1.3640 for additional gains ahead of 1.3660 (January 20 high) and 1.37 the psychological level.