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Good News for the Pound in the Form of Latest Services PMI Data

Services sector PMI is key focus today

This week's data highlight for the British Pound comes in the form of the release of Services PMI data from IHS Markit and the CIPS which should cast light on how the U.K. economy's largest sector is performing.

Pound Sterling was seen trading at near-unchanged levels in the wake of the release of Services PMI data from IHS Markit and the CIPS.

Accounting for in excess of 80% of U.K. economic activity, the release tends to impact direction in Sterling whenever it surprises against analyst expectations.

The problem for those hoping for volatility is that the data came in more-or-less in line with economist expectations - analysts were forecasting a reading of 54.1 for the month of December, a tick up on November's 53.8.

The confirmed reading was for 54.2, which confirms the sector continues to grow at a decent enough clip. However, for a currency trader the beat was not enough to justify a fresh bid on Sterling.

At the time of writing the Pound-to-Euro exchange rate is quoted at 1.1239 and the Pound-to-Dollar exchange rate at 1.3524 - both key rates are well within recent ranges.

Nevertheless, the strong reading of 54.2 confirms the U.K. economy enters the new year with decent impetus and this should underpin the Pound longer-term which reinforces those forecasts that see Sterling appreciating in the year ahead.

“The services sector experienced mixed fortunes in December, as business activity expanded at an accelerated pace but the flow of incoming new work was the slowest since August 2016," says Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply.

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Elsewhere, the Bank of England’s money and credit figures for November revealed that the number of mortgages approved for house purchase rose from 64,887 in October to 65,139, above the consensus expectation for a further fall, which had seemed likely following the decline revealed in the UK Finance measure which covers the main high-street banks, released on 27th December.

At the same time, consumer credit continued to expand at a fairly strong £1.4bn on the month.

"All in all, then, the latest data suggests that the economy maintained a decent amount of momentum in Q4, which we expect to be built upon in 2018. Indeed, our forecast is for GDP growth of 2% or so, compared to the consensus forecast of a slowdown to 1.4%," says Paul Hollingsworth, UK Economist with Capital Economics.

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