Wednesday’s release of the UK February services PMI is expected to show a rise to 57.5 from 57.2 with sterling bulls hoping for the 2nd monthly increase to join the recent upside surprises in UK economic data. Today, UK’ construction PMI rose to 60.1 in Februar, hitting a 4-month high on the back of Monday’s 7-month highs in the manufacturing PMI. The report is in line with expectations that the UK economy is gradually rebounding from all three cylinders (services, construction and manufacturing). So how is GBPUSD expected to react on Wednesday’s figures?
The chart below illustrate the 6-hour reaction in GBPUSD to each of the last 13 releases in UK services PMI.
The highlights of the past reactions are the following:
The Feb 4th 2015 release of the January services PMI showing a +1.62 surprise above expectations (Bloomberg consensus) to 57.2 triggered the biggest GBPUSD rally over the ensuing six hours from the time of release out of all 13 observations. GBPUSD ended up +0.48% or about 70 pips.
The release of Nov 5h (+3.5 pts), June 4th (+0.72 pts) to 58.6, May 6h (+2.0 pts) and Mar 5h (+0.30 pts) have also lifted GBPUSD by at least 0.20% in the ensuing 6 hours from the release.
TheOct 3rd 2014 release, showing a -0.37 surprise to 58.7 led to a 0.84% decline in GBPUSD, reflecting a miss on the release as well as a decline from the prior month. Aside from the surprise and trend factors, GBPUSD was in the midst of broadening selloff, partly reflecting the fast declining inflation figures and USD’s yield superiority via the prevailing data.
Sterling sentiment is also important in determining reactions as the Sep 3rd 2014 large upside surprise of +3.72 to a 9-month high of 60.5, failed to help GBPUSD, ultimately leading to a decline in of 0.13%. The release was impacted by deteriorating sentiment in the currency surrounding heightened uncertainty ahead of the Scottish referendum.
The aforementioned reactions highlight that GBPUSD’s reaction to the UK Chicago services PMI release are largely dependent on prevailing sentiment in sterling, the extent of the surprise relative to expectations and trend in the PMI. Current sentiment in sterling has lacked the last week’s bullishness but remains above GBPUSD’s important 55-day moving average. Consensus expects a modest rise to 57.5 from 57.2, but it would take an outcome of at least 58.0 to lift the pair above $1.5400. We expect the pair to continue hovering between the 55 and 100 DMAs until the Friday release of the February US jobs report. Naturally, the 6-hour span will be influenced by the US ADP and services ISM figures.
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