The British pound has edged higher on Thursday. In the North American session, GBP/USD is trading at 1.2698, up 0.27%.

UK Services PMI beats expectations

UK Services Final PMI was a bright note on Thursday. The PMI rose to 53.4 in December, up from 50.9 in November and above the preliminary estimate of 52.7. This marked a second straight expansion after posting three consecutive declines. This was the fastest rate of expansion since June, as consumer demand showed improvement and service providers showed increased optimism over business conditions. The British pound retreated after the PMI release but has managed to recover much of these losses.

The UK wraps up the week with Construction PMI on Friday. The December PMI is expected at 46.0, which would mark a fourth straight decline. The construction industry has been hit hard by the weak UK economy and house building remains weak in both the residential and commercial sectors.

In the US, the FOMC minutes were a disappointment in comparison to all the buzz generated after the Fed’s December meeting. The Fed has been hawkish for months but made a surprise pivot at the meeting, saying it expected three rate cuts in 2024. This is much more cautious than the six cuts priced in by the markets, but it nevertheless marked a major shift for the Fed, which sent the US dollar lower and the equity markets higher.

The minutes acknowledged that the current benchmark rate was at or near a peak and that members expected to lower rates this year. However, members cautioned there was an “unusually elevated degree of uncertainty” about the rate path, which would depend on economic conditions.

The takeaway from the minutes is that the Fed is eyeing rate cuts but hasn’t determined when it would start trimming rates. The markets have priced in the probability of a rate cut by March at around 80% and are expecting five or six cuts this year. It will be interesting to see if the Fed continues to try and dampen these expectations.

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GBP/USD Technical

  • GBP/USD is testing resistance at 1.2689. Above, there is resistance at 1.2714
  • There is support at 1.2652 and 1.2627

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