- UK services companies saw increased growth this month.
- The data revealed a smaller-than-expected budget deficit for December in Britain.
- Market indicators suggest a roughly 50% chance that the BoE will start cutting interest rates in May.
Wednesday brought a bullish outlook for the GBP/USD forecast due to signs of resilience in the UK economy. Moreover, there were expectations that the Bank of England would delay interest rate cuts compared to other central banks.
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Britain’s services companies experienced increased growth this month, pointing to a modest recovery in the sluggish economy. However, factories are now feeling the impact of tensions in the Red Sea.
The PMI data is likely to reassure the Bank of England ahead of the upcoming interest rate meeting, pointing to easing overall inflationary pressures. Still, it may support the case for a cautious approach in gradually lowering borrowing costs.
The preliminary S&P Global/CIPS UK composite PMI rose to 52.5 in January, the highest level in seven months. Moreover, it was an improvement from December’s reading of 52.1.
Meanwhile, on Tuesday, data revealed a smaller-than-expected budget deficit for December in Britain. Therefore, there is room for tax reduction in the upcoming March budget. Analysts at Monec Europe noted that sentiment towards the UK economy was “generally improving”.
In the medium term, the key question for the British currency is whether the Bank of England will lag behind the Fed and ECB in cutting rates and by what margin.
Meanwhile, market indicators suggest that there is approximately a 50% chance that the BoE will start cutting interest rates in May. However, this timeframe may be too early for the bank, which has expressed concern about persistent inflation.
GBP/USD key events today
- US Flash Manufacturing PMI
- US Flash Services PMI
GBP/USD Technical Forecast: Renewed bullish momentum targets 1.2800
The pound continues to rise and is on the verge of breaking above the resistance level at 1.2750. The bullish bias is strong and since the price made a bullish candle at the support level of 1.2600.
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Initially, the bullish movement stalled at the 1.2750 resistance level, allowing the bears to attempt to take over the 30-SMA. However, they failed as the bulls came back with renewed momentum. If the price closes above 1.2750, the bulls will soon retest 1.2800. Additionally, a break above 1.2800 would finally allow the pair to trend up after a long period of consolidation.
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