UK service sector teeters on contraction territory

11:05 AM 5 February 2019

The pound has fallen to its lowest level of the day in recent trade after a third consecutive data point from the UK in as many business days has flashed a warning sign on the economy. Following on from disappointing manufacturing and construction numbers, the latest purchasing managers index for the service sector, which due to its relative size is considered the most important of the 3, has fallen to its lowest level since July 2016 - the month after the EU referendum. The 50 mark denotes the line between contraction and expansion and the print for January of 50.1 is perilously close to falling into contractionary territory.


UK PMIs have pulled back further of late with Brexit uncertainty and a slowing global economy weighing on economic activity. Source: XTB Macrobond

In the initial reaction the pound has dropped back near the $1.30 level and close to its lowest in a fortnight. PM May is set to deliver a speech in Northern Ireland later on Brexit and this will no doubt be on the radar for pound traders. While near term economic data has taken a back-seat to Brexit developments in the past couple of months it is becoming increasingly apparent that the economy is slowing, due both to the uncertainty surrounding leaving the EU and also a broader slowdown in global economic activity.      

GBPUSD is now probing potentially key support in the region from 1.3000-1.3015. This is where price broke up higher from a couple of weeks back. Source: xStation

 

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