The GBP/USD dropped following the UK services, purchasing managers index, which missed expectations, in February. The composite PMI also managed to rise to a three-month high of 57.0 thanks to strong manufacturing and construction inputs. Markit estimates that the UK economy is growing at a slightly faster pace than in Q4, forecasting Q1 GDP growth of 0.6% quarter over quarter after 0.5% in Q4. The take away from the BoE policy perspective is rising wages, which will up the ante with regard to tightening arguments.
The UK Markit February services PMI unexpectedly dipped to 56.7 from 57.2, compared to a mean forecast for a rise to 57.5, and the outcome also contrasts the much better than forecast manufacturing and construction PMI surveys. At 56.7, the service-sector PMI still indicates robust expansion, and above December’s 19-month low at 55.8. The details were also encouraging, with wages and new orders rising, and staff hiring coming in at the second-quickest rate, at 57.3, since record began in 1996.
Despite the dip in the services PMI, the headline composite PMI managed to rise thanks to the strong manufacturing and construction inputs, to 57.0, which is a three-month high, from 56.9 in January. The dip in the services report comes on the heels of a stronger than expected construction PMI released on Tuesday.
The UK February Markit construction PMI smashed expectations in rising to 60.1 compared to expectations of a rise to 59, indicating robust expansion in the sector, extending the January reversal from the drop to a 16-month low of 57.4 in December. Growth was seen in all three sub-sectors including residential, commercial, and civil engineering, which all grew by the most since last October on the back of sharp rises in new business volumes.
The GBP/USD is testing support levels near 1.5325, and a break would lead to a test of 1.5165. Resistance is seen near the 10-day moving average at 1.5415. Momentum has turned negative with the MACD (moving average convergence divergence) index generating a sell signal. This crossover points to lower futures prices for the exchange rate.