GBP/USD: Weekly Analysis for Forex Trading
GBPUSD slumped at the European session on Friday after economic data released this morning showed that the UK services retreated more than the expected within February reaching to its lowest in 5 months. This reduced the optimism sentiment on the British economy which is largely made up of the service sector.
The Market Research Organization (Market) said in its Report released earlier this morning that the UK Services Purchasing Managers’ Index had declined this month to 53.3 points against 54.5 point last month. The analysts expected a slight decline up to 54.5 points.
The service sector constitutes 80% of the British economy. Thus, this indicator is the most important of the other Purchasing Managers’ Indexes for the UK.
As a general rule in all Purchasing Managers’ Indexes, regardless of the country and sector, any reading above 50.0 point indicates that the sector activities have expanded during the relevant month. However, any reading less than this level refers to the contraction of sector (s) specified on the Index.
Market stated that this was the slowest growth in the sector since September 2016. The Report also shows that there is a slight increase in new business. The companies are strongly optimistic despite. However, the inflation of costs of production inputs reaches its highest level in eight and half years.
A Senior economic analyst at Market (Chris Williamson) commented on the Report: “Larger slowdown in UK business is expected in February. This enhances the proofs that the economy lost the momentum after the immense expansion witnessed last year”. Williamson added that the data mentioned in this Report and other reports of Purchasing Managers’ Indexes of Manufacturing and construction sectors showed that only 0.4% growth was achieved within the first quarter of this year. He stated, “Low consumption spending was the main cause of slowed growth of the service sector. This means that the purchasing power of British households decreased due to high prices and wages’ weak growth”.
Williamson indicated that the continuous rise in production costs indicating that inflation rates of consumer prices are likely to increase up to 3% within the next year. Notwithstanding, Williamson said that such slowdown might give Bank of England (British Central Bank) a justification to say that there is a need to increase the economic simulation procedures. The analyst said, “Monetary policy makers are likely to continue to confirm that it is necessary not to ignore any further improvement in the inflation measurements and to focus instead on the need to maintain customized cash policies to face any further slowdown in the economic growth within 2017.”
After publishing the Forex Trading Report, GBPUSD traded at 1,2227 which its lowest since 17 January before it stabled at 1.2235. Accordingly, the exchange rate plunged by 0.26%.
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