Sterling slightly higher, Services PMI next

The British pound has recorded slight gains on Wednesday. The pair is currently trading at 1.4171, up 0.16% on the day.

As Covid infection rates continue to drop, the UK government has been easing health restrictions and gradually reopening the economy. As the economy heats up, speculation has been rising as to whether the Bank of England will have to re-evaluate its ultra-accommodative monetary policy. Investors are keeping a close eye on comments from BoE policymakers regarding a tapering of QE or a potential interest rate hike. Any signals from the BoE of a tightening in policy are likely to provide a boost to the pound.

The BoE is expecting a surge in growth for 2021, with a forecast of 7.25%. If this projection is within expectations, it seems almost a given that the central bank will have to tighten policy in response to a surge in growth. As the economic recovery deepens, the BoE will have to keep a close eye on inflation, in addition to the employment market. In the US, a surge in CPI boosted the dollar, and we can expect a similar reaction from the pound if UK inflation heads higher.

Services PMI reflects surge in growth

Business activity has surged, thanks to the easing of health restrictions. If all goes well, all legal limits on social restrictions will be removed on June 21. The improvement in the services sector was reflected in the April Services PMI, which jumped to 61.8, up from 56.3. The consensus is that the PMI will repeat with a read of 61.8 points. This points to strong growth, well above the 50-level which separates expansion from contraction.

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GBP/USD Technical Analysis

• GBP/USD is facing resistance at 1.4241. Above, there is resistance at 1.4293
• On the downside, there are support lines at 1.4114 and 1.4039

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