Pound under pressure, Services PMI next

The British pound is in red territory on Tuesday. Currently, GDP/USD is trading at 1.3625, down 0.28% on the day.

Services PMI expected to slide

We’ll get a look at UK Services PMI for January on Wednesday (9:30 GMT). The initial estimate for the PMI showed a sharp drop to 38.8, down from 49.4 beforehand. The PMI has been in contraction territory since November, with readings below the neutral 50-level. This can be attributed to the lockdowns across the UK, in response to a surge in Covid-19 cases. Domestic economic activity has been curtailed, with the services sector hit hard by the health restrictions. The final release is expected to confirm the initial reading of 38.8, which would signify the deepest contraction since May, when Covid shut down large parts of the UK economy. There won’t be any surprises with this grim reading, but investors could nonetheless react in a surly fashion and send the pound to lower levels.

The manufacturing sector remains in much better shape than services. Manufacturing PMI in January was upwardly revised from 52.9 to 54.1, which points to expansion. Still, this was below the December release of 57.5, which was the highest score in three years. Some of the slowdown in manufacturing can be attributed to Brexit, as there have been transport delays at British ports due to new post-Brexit regulations. As well, the Covid-19 restrictions have led to supply chain disruptions.

The markets are casting an eye ahead to Thursday, when the Bank of England holds its monthly policy meeting. The central bank is expected to maintain interest rates at 0.10%, where they have been pegged since March. The spotlight will be on the policy summary and BoE Governor Bailey’s press conference, with investors looking for clues regarding any changes in monetary policy.

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GBP/USD Technical

• GBP/USD faces resistance at 1.3768. Above, there is resistance at 1.3838
• 1.3619 is under strong pressure in support, followed by a support line at 1.3540. The 50-day moving average (MA) follows closely at 1.3519

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