The whipsaw action in sterling came following PMI data and as investors attempt to second guess the BoE ahead of the rate decision next Thursday.
- Manufacturing 49.8 vs. 48.7 exp. (47.5 previous)
- Service sector 52.9 vs 51 exp. (50 previous)
- Composite 52.4 vs 50.7 exp. (49.3 previous)
The composite pmi reading, which is a useful gauge for economic output across the economy, jumped to its highest level in 2 years.
These are upbeat readings that show that the UK experienced a post-election Boris bounce, an encouraging start to the new year. The reading points to economic growth of 0.2% and has caused investors to scale back expectations that the BoE will cut interest rates when they meet on 30th Brexit.
The pound was unable to sustain gains as profit taking took over. The pound has been one of the strongest performers across the week heading into the PMI’s as investors started to price out the possibility of monetary policy easing by the BoE following upbeat labour market data & CBI figures..
Brexit is never far from any pound traders’ thoughts. The Brexit bill was signed off yesterday by the European Commission President Ursula der van Leynes. It will now go to the European Parliament on 29th January for ratification before Brexit next week on 31st January and the start of the all-important trade talks.
Levels to watch:
Pound’s sell ff has seen it slip through 200 sma on 4 hour chart. It remains above 100 & 50 sma. Momentum remains to the upside.
Immediate support can be seen at $1.3080 prior to $1.3050 before $1.2950 (Jan low).
Resistance can be seen at $1.3120, prior to $1.3150, $1.3170 (today’s high) before $1.3210 (high 6th Jan).