The British pound is lower against the US dollar on Friday afternoon as speculation about a potential Bank of England rate cut next week meant Sterling was unable to capitalise on better-than expected surveys about the health of the British economy.
GBP/USD was lower by 33 pips (-0.24%) at 1.3086 with a daily price range of 1.308 to 1.315 as of 1.30pm GMT, as the currency pair slipped back below 1.31 to send a strong week on a soft note.
Interest rates being lowered this month already looked doubtful after data showed UK the employment rate had risen to its highest on record. PMI data released on Friday make an even bigger case to keep interest rates on hold. The service sector saw a faster pace of expansion than expected and manufacturing narrowly missed out on expanding too, having been heavily in contraction according to the prior month’s stats.
The services sector PMI compiled by Markit came out at 52.9 versus expectations of 51 and up from 50 the prior month. Markit’s manufacturing PMI was 49.8 versus expectations of 48.9 and up from 47.5. When interpreting PMIs, a number above 50 means expansion while a number below 50 denotes contraction.
The pound initially advanced after PMIs were reported Friday morning but ran into selling after reaching its highest level against the dollar since January 7.
Despite the stronger data and the implied economic rebound in the first month of 2020, markets are still pricing in about a 45% chance that interest rates in the UK are cut next week. With several key policymakers making a strong case for cutting rates in the lead up to the meeting, its not clear that one or two datapoints will change their mind.
Some dollar strength at the end of a lacklustre week for US economic data contributed towards some of the GBP/USD weakness. This afternoon the US equivalents of the PMI data from Markit will be released at 14.45 GMT. The US manufacturing PMI is forecast to slip slightly to 52.5 in January from 52.4 while services is expected to pickup to 52.9 from 52.8.