Business activity in the British services sector improved markedly in the last month of 2016, according a private survey published on Thursday. Markit reported that its Purchasing Managers' Index for the country's services sector, which accounts for more than 75% of the UK economy, climbed to 56.2 in December, following the previous month's 55.2 points and surpassing analysts' expectations for 54.8. This was the fastest rate of growth recorded since the middle of 2015. Despite the stronger than expected December reading, companies are likely to raise their prices to offset the post-Brexit drop in the value of the British Pound that fell around 20% against the US Dollar since the EU referendum. According to Markit, the weak Sterling sent food and fuel prices soaring, as well as pushed costs for plastic packaging, IT and wages. Markit also stated that the UK economy probably expanded at an annualized pace of 0.5% in the last quarter of 2016, ignoring the Brexit vote and slightly easing from 0.6% in the previous quarter. However, analysts widely expect UK growth to drop sharply in 2017.
According to the latest projections, UK economic growth is predicted to slow to 1.1% during this year amid higher inflation and investment cuts. Back in August, the Bank of England cut its key interest rate to a record low of 0.25%, signaling further possible cuts.
US Employment data is due
GBP/USD risks sliding back under 1.24
Poor US fundamental data and persistent weakness caused by the FOMC Minutes continued to weigh pressure on the American Dollar, allowing the British Pound to take the upper hand yesterday. As a result, the Cable surged nearly 100 pips, meeting resistance only near the 1.2420 mark. Although slightly weaker, but the same supply area keeps providing strong resistance, which could turn the tide back into the Greenback's favour. Technical indicators support this outlook, but another set of weak fundamentals could still provide the GBP/USD pair with sufficient impetus for another leg up.
Daily chart
Hourly chart
Traders mostly bullish
There are 68% of traders with a positive outlook towards the Sterling today, compared to 61% yesterday. Sell orders keep rising, now taking up 58% of the market (previously 53%).
A similar situation is observed elsewhere. For example, 65% of positions open at OANDA are currently long. This is more than the share of shorts (35%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 62% of traders being long and 38% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect the Cable to keep falling
By the end of the next three months traders expect the Cable to fall under the 1.24 major level, as 63% of survey participants believe so. While the current price is around 1.23, the average forecast for April 06 is 1.23. However, the 1.18-1.20 interval is now the most popular one, having 17% of the votes, while on the second place is the 1.20-1.22 price range, with 15% of poll participants choosing it. Furthermore, the 1.22-1.24 interval was chosen by 13% of the voters.