**GBP/USD Analysis: Sterling Eases Despite Upbeat UK Services Data as Traders Await Fed Policy Clues**
*Original Author: Mitrade News Team*
*Source: Mitrade.com*
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The GBP/USD currency pair eased on Tuesday, giving up early gains, even after the United Kingdom’s services sector data for August surpassed market expectations. The shift in momentum suggests that broader factors, especially the anticipation surrounding this week’s data-heavy calendar and the Federal Reserve’s policy outlook, are influencing trading decisions. In this article, we’ll explore the nuanced drivers of GBP/USD movement, analyze key technical and fundamental factors influencing the pair, and provide an overview of what traders should watch for in the days ahead.
## Sterling Loses Early Gains Despite Robust UK Services PMI
The UK released its August Services Purchasing Managers Index (PMI) early Tuesday, registering a final reading of 49.5, slightly above the flash estimate of 48.7. The survey marked a small improvement for the British services sector, reflecting resilience despite ongoing cost-of-living concerns and high interest rates.
– **Key PMI reading:**
– Final August Services PMI: 49.5 (Flash: 48.7; Previous: 51.5)
– A reading below 50 signifies contraction.
– **Market impact:**
– Despite the positive surprise, GBP/USD initially rallied before losing steam in the European and US session as traders digested the implications for Bank of England policy.
– **Underlying trends:**
– Activity in the UK’s vital services sector continues to slow.
– Some optimism exists as the economy shows flexibility amid recent rate hikes.
## Broader Context: Bank of England and Federal Reserve in Focus
Sterling’s struggle to build on good news from the services sector also stems from uncertainty over the next steps by central banks, particularly the Bank of England (BoE) and the US Federal Reserve (Fed). Investors are weighing the implications of continued high inflation and signs of economic slowdown in both the UK and the US.
### Bank of England Policy Outlook
– The BoE has embarked on an aggressive rate-tightening cycle to combat persistent inflation, with its base rate now at the highest since the 2008 financial crisis.
– Recent comments from policymakers have been notably cautious, suggesting a willingness to pause or at least slow the pace of rate increases as evidence mounts of softening economic activity.
– Markets remain split over whether another rate hike is on the cards in the upcoming MPC meeting or if the BoE has reached its terminal rate.
– Key consideration: If UK economic data continues to weaken, the BoE may be forced to stop hiking sooner than previously thought, potentially weighing on the pound further.
### Federal Reserve Policy Expectations
– The focus for global markets remains the US Federal Reserve’s September decision and any signals about rates staying “higher for longer.”
– US ISM Services PMI is due later this week, alongside crucial labor market data, which markets will interpret as leading indicators regarding inflation and growth prospects.
– Fed policymakers, including Chairman Jerome Powell, have recently stressed data-dependency, leaving markets constantly recalibrating expectations.
– If US data remains strong, market participants expect the Fed to maintain a hawkish stance, favoring the US dollar against peers such as sterling.
## Technical Analysis: GBP/USD at a Crossroads
Following failure to sustain a move above the 1.2700 handle, GBP/USD reversed course, resuming a downward trend that began in mid-July. Technical signals highlight ongoing weakness, with risks tilted to the downside unless a clear bullish catalyst emerges.
### Key Technical Levels to Watch
– Immediate resistance: 1.2700, followed by 1.2740.
– Minor support: 1.2600, closely tracked by 1.2540 (August lows).
– Bearish momentum: GBP/USD trading below both the 50-period and 200-period moving averages on daily charts.
– Relative Strength Index
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