The pound nudged lower after the data here, which showed a further slump in services activity. The continued downturn is prompting a call by S&P Global that the UK economy will contract by 0.4% in Q3, underscoring the faltering momentum in the second-half of the year. GBP/USD is down 0.3% to 1.2250, hanging around its lowest levels since March:
GBP/USD daily chart
The drop in the pair continues after breaks below the 200-day moving average (blue line) and also the May low of 1.2308 yesterday.
There is little support for the pair now, with the 1.2000 mark a potential target for sellers down the road. But I reckon it will take quite a bit for sellers to actually reach that point. For one, the dollar needs to hold steadfast and higher yields need to continue to be in play. But that is a separate discussion in itself.
As for the pound, there’s not much to be optimistic about as the data begins to vindicate the BOE pausing for good. That is a call that is growing to be more popular with the likes of Goldman Sachs, BNP Paribas, Barclays, Morgan Stanley, and UBS all saying now that the central bank is done with rate hikes.
Considering that all the major central banks are pausing, the narrative now switches to who can hold rates higher for longer. That is an indirect way of asking the question: Which of the major economies is going to be the one that holds up the best?
The answer so far today is that it isn’t looking to be Europe or the UK. But we’ll see if the US PMI data later will have any surprises in store for us.