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Pound weak despite positive revision to services PMI

British pound

The headline seasonally adjusted IHS Markit/CIPS UK Services PMI Business Activity Index fell from 49.4 in December to 39.5 in January

The Great Britain pound was one of the weakest currencies on the Forex market during Wednesday’s trading despite the positive revision to Britain’s services PMI. Markets now focus on Thursday’s monetary policy announcement from the Bank of England.

The headline seasonally adjusted IHS Markit/CIPS UK Services PMI Business Activity Index fell sharply to 39.5 in January from 49.4 in December according to the final estimate. Despite the drop, the actual reading was better than market expectations and the preliminary figure of 38.8.

Tim Moore, Economics Director at IHS Markit who is responsible for compiling the survey, commented on the result: Service providers experienced a steep downturn in business activity due to the third national lockdown in January, although the speed of decline remains much slower than last spring. Tight restrictions on travel, leisure and hospitality resulted in severely reduced trading among customer-facing businesses.

But not everything was bad, though, as he explained further: Positive news on the UK vaccine rollout pushed up business optimism to its strongest since May 2014 and this improvement contrasted with a decline in confidence reported by service providers in the euro area during January.

The BoE will announce its monetary policy decision on Thursday. While markets do not expect any change to interest rates or the size of the asset-purchase program, that does not necessarily mean that traders should not watch the announcement. The central bank will release its updated economic projections alongside the policy announcement.

But what perhaps is even more important, market participants wait for the bank to report its findings on the effectiveness of negative interest rates. That can help traders to predict whether the BoE is going to implement negative rates or not.

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