Pound rises on strong Services PMI

The pound has posted gains at the start of the week, punching above the 1.36 line. In the European session, GBP/USD is trading at 1.3634, up 0.35% on the day.

PMIs points to UK rebound

The UK economy continues to grow and has rebounded after a bump from Omicron in January. Manufacturing and services both showed significant expansion for February, boosted by the cancellation of most Covid restrictions. Manufacturing PMI remained steady at 57.3, while the Services PMI impressed with a reading of 60.8, up from 54.1 beforehand. The strong numbers point to a resilient economy, with inflation at its highest level in 30 years.

The impressive PMI numbers have reinforced expectations that the BoE will raise interest rates at its March meeting. This would mean an unprecedented third successive rate hike by the central bank. The BoE will likely implement a hike of 25 basis points, which would raise the cash rate to 0.75%. What will happen after March? We’re likely to see further hikes in order to wrestle down inflation, but the exact number of hikes will depend on how strong inflation is and the strength of the economy.

There have been further skirmishes between the Ukraine army and the pro-Russian separatists, with fears that Russia is deliberately creating these flare-ups in order to justify an invasion of Ukraine. Russia has over 100 thousand troops around the border with Ukraine, and could choose to invade at any time. However, there have been some diplomatic maneuvering in the meantime, notably a possible meeting between Presidents Biden and  Putin. Biden expressed his willingness to meet Putin if there was no invasion. The situation in Ukraine remains very tense, and market direction in the coming days will depend to a large extent on developments in this global crisis.

• There is resistance at 1.3662 and 1.3731
• There is support at 1.3506 and 1.3419

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