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At the end of last week, the Pound Sterling continued its gains against the US Dollar and closed lower against the Euro after survey data showed the UK economy outperformed expectations in January. According to reliable trading platforms, the GBP/USD pair rose to the resistance level of 1.2501 before closing the week around 1.2479.
A Look at UK Economic Data Results
According to the economic calendar data, the S&P Global/CIPS UK Services Purchasing Managers' Index (PMI) rose to 51.2 from 51.1 in January, defying expectations of a decline to 50.6. The manufacturing PMI also rose from 47 to 48.2, exceeding the consensus forecast of 47.1. At the same time, the composite PMI, which combines data to give a better reading of the broader economy, rose to 50.9 from 50.4, again exceeding estimates (50).
Overall, this data represents a welcome break from the series of gloomy UK economic data that we have become accustomed to since mid-2024. This relief is reflected in the rise in sterling against other major currencies.
Overall, the PMI survey is by no means a sign that all is well, as the important“new work” component fell at its fastest rate since October 2023. Furthermore, UK employment levels fell for the fourth month in a row, with firms blaming rising cost pressures. These cost pressures will intensify in April when labour taxes are raised, and the minimum wage increases push up wage demands across the board.
Input price inflation also rose, suggesting that headline inflation will pick up in the coming months.
Top Forex Brokers1 Get Started 74% of retail CFD accounts lose money Bank of England Policy Expectations
For the BoE, this economic data will do little to delay another rate cut in early February. What it will do, however, is ensure that the Bank remains cautious about signalling that it wants to accelerate the pace of rate cuts. The market is expecting a similar outcome, which is why UK bond yields are rising, as is the pound.
While the headlines offer some comfort, the underlying fundamentals remain weak. Commenting on this, Capital Economics analysts said:“This data remains consistent with GDP stagnating at the start of the first quarter after the economy lost all momentum at the end of last year. This suggests that the risks to our forecast for GDP growth of 0.4% q/q are to the downside. Today's data release will not alleviate the Bank's concerns about weak activity.”
Overall, the Bank of England is expected to cut interest rates by 25 basis points in February, with the market expecting only two more hikes in 2025. Expectations about the future of UK interest rates remain the main driver of GBP behaviour, with the recent wave of weakness reflecting a rise in expectations for an acceleration in the pace of cuts. This pricing could extend from here due to signs of recession, suggesting that periods of GBP strength may be short-lived Tips:
The GBP has so far lacked any strength factors and faltering investor sentiment could negatively impact any gains for the GBP.
EURUSD Chart by TradingViewTechnical Analysis for the GBP/USD pair today:
Despite the recent gains, the broader GBP/USD price path remains bearish so far, according to the performance on the daily chart above. If the bulls succeed in controlling them, they must first launch towards the resistance levels of 1.2620 and 1.2780, respectively. From the last level, the RSI may move towards overbought levels, but the MACD may have more time before reaching those limits. On the other hand, and in the same time frame, a return to the 1.2330 support area threatens attempts to rebound higher. Thus, the bears are ready to launch strongly towards deeper support levels. The direction will remain subject to the reaction of currency investors to this US Federal Reserve announcement, in addition to the performance of global financial markets and risk sentiment.
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