- UK services PMI comes in at 53.8 against the forecast at 53.6
- GBPUSD rebounds on the better than expected PMI print
- Bank of England decision looms
The UK’s services PMI for July came in at 53.8 while the estimate suggested a marginally lower reading at 53.6. The reading came on the heels of final releases from other European economies. Let us recall that there were manufacturing as well as construction PMIs from the UK earlier this week. The former proved to beat expectations, in turn, the latter turned out weaker suggesting a further contraction in UK’s construction output.
UK’s construction PMI is at odds with readings concerning manufacturing and services. Source: Bloomberg, XTB Research
On the face of it, the services PMI above expectations could settle down some concerns about a deeper slowdown in retail sales. Bear in mind that the services sector is by far the paramount one for the UK’s economy, thereby, it could exert the largest impact on the GBP and other UK-related assets.
UK’s services PMI foretells a continued rebound in retail sales going forward. Source: Bloomberg
Taking a look at the chart above one could notice that quite steady pace of the UK’s services PMI suggests that a slump in sales seen in May could have been just a one-off event. Having said that, it could embolden the Bank of England to deliver more hawkish statement at today’s and upcoming meetings as well, if the trend keeps its pace.
Just two analysts forecast a hike at today’s meeting while an overwhelming majority predicts the BoE will hold off on shifting rates. Source: Bloomberg
Being around 2 hours before the Bank of England decision it’s worth glancing at the probability of a change in rates coming from a Bloomberg survey. As it was presented at the chart above just two analysts assume a hike, whereas others do not forecast a change in rates in August.
Given that distribution one could say that risks are not balanced. If the BoE decides to deliver more hawkish statement, it could prompt traders to pile up their longs even as the GBP looks quite overvalued when we see at the speculative positioning.
The GBPUSD is rebounding from an upper limit of a triangle formation. If a breakout is sustained, it could lead to a test in the vicinity of 1.3450. Source: xStation5
The GBPUSD seems to be in an uninterrupted uptrend and could eye 1.3450 in the nearest future if the BoE maintains a case for a hike in place later today. In turn, a dovish tone could see the GBPUSD falling towards 1.3045. At the end of the day, let us present out preview before the decision.