GBP to USD Forecast: UK Services PMI and Subcomponents in Focus

Highlights

• The GBP/USD declined by 0.35% on Wednesday, ending the session at $1.24937.
• US economic indicators left the GBP/USD in negative territory on Wednesday.
• On Thursday, the UK services sector PMI and subcomponent will be in focus.

The Wednesday GBP/USD Overview

On Wednesday, the GBP/USD declined by 0.35%. After a 0.27% gain on Tuesday, the GBP/USD ended the day at $1.24937. The GBP/USD rose to a high of $1.25494 before falling to a low of $1.24489.

The UK Services Sector in the Spotlight

On Thursday, preliminary UK private sector PMIs for November will draw investor attention. Market fears of a prolonged UK economic recession could fuel increased sensitivity to the numbers. However, the Services PMI will likely have more impact on the appetite for the GBP/USD.

The UK services sector contributes over 70% to the UK economy and is the driving force behind inflation. An unexpected fall in the Services PMI could signal a UK recession. Investors must consider subcomponents, including prices, new orders, and employment.

Softer price pressures could ease demand-driven inflationary pressures. A downward trend in inflationary pressures may support Bank of England discussions on rate cuts.

Economists forecast the UK Manufacturing PMI to increase from 44.8 to 45.0 in November. Significantly, economists expect the Services PMI to remain unchanged at 49.5.

Fed Rate Cut Bets Remain Intact Despite Recent Stats

US economic indicators from Wednesday pressured the GBP/USD. Better-than-expected US labor market and consumer sentiment figures supported bets on a soft landing. However, the numbers failed to significantly affect May Fed rate cut bets.

Tight labor market conditions support wage growth and disposable income. An upward trend in disposable income could fuel consumer spending and demand-driven inflationary pressures. A more hawkish Fed rate path would raise borrowing costs and reduce disposable income.

While inflationary pressures have softened, a tight labor market and wage growth remain bugbears for the Fed.

There are no US economic indicators for investors to consider on Thursday. The US markets are closed for the Thanksgiving holiday. However, service sector PMI numbers on Friday will influence bets on a May Fed rate cut.

Short-Term Forecast

Near-term GBP/USD trends hinge on UK and US services PMI numbers and the prices subcomponent. A more marked contraction in UK service sector activity and softer prices could allow the BoE to begin rate cut discussions. However, the US services sector needs to avoid a contraction to support bets on a soft landing.

GBP to USD Price Action

Daily Chart

The GBP/USD held above the 200-day and 50-day EMAs, sending bullish price signals.

A GBP/USD return to $1.25500 would bring the $1.28013 resistance level into view.

UK Private sector PMIs and the prices, new orders, and employment sub-components are areas of interest.

However, a GBP/USD drop below the $1.25 handle would support a fall to the $1.24410 support level.

The 14-period daily RSI reading of 62.44 indicates a GBP/USD return to $1.26 before entering overbought territory.

4-Hourly Chart

The GBP/USD remained above the 50-day and 200-day EMAs, reaffirming bullish price signals.

A GBP/USD breakout from $1.25500 would give the bulls a run at the $1.26 handle.

However, a drop below the $1.25 handle would give the bears a run at the $1.24410 support level and 50-day EMA. Buying pressure could intensify at $1.24410. The 50-day EMA is confluent with the $1.24410 support level.

The 14-period RSI on the 4-hour Chart at 55.74 indicates a GBP/USD return to $1.26 before entering overbought territory.