UK Services PMI Preview: A temporary distraction from Brexit for GBP/USD, but probably no relief

Markit's Services PMI will provide a snapshot of how businesses are feeling about Brexit.
Data usually has a short-lived effect when Brexit is left, right, and center.
GBP/USD may drop if the data disappoint.

Yohay Elam FXStreet

Markit releases its Purchasing Managers' Indicator for the Services sector on Wednesday, April 3rd, at 8:30 GMT. The sector is the UK's largest and includes the all-important financial services. The publication tends to have a significant impact on GBP/USD at reasonable times.

These are not normal times, as Brexit is just around the corner, just nine days after the data is due. Every minor Brexit headline rocks the pound, while data has a limited impact in both the price action and the time it affects Sterling.

Expectations

In February, the score was 51.3 points, hardly above the 50-point threshold that separates expansion from contraction. A similar level, even closer to 50, is due now: 50.9 according to the economic calendar.

The Services PMI is the third and last one. Manufacturing PMI beat expectations with 55.1 points, better than had been anticipated. However, a closer look revealed that it is mostly due to stockpiling in fear of a hard, no-deal Brexit. The Construction PMI met expectations with 49.7 points, just below the 50-point threshold.

The British Chamber of Commerce (BCC) said that the ongoing impasse in Westminster is already taking its toll, contributing to a "sharp slowdown in the real economy." In their quarterly report, they singled out services sector firms, saying that "a rise in export sales at its lowest level in a decade."

Scenarios

Therefore, a drop below 50 cannot be ruled out, and it could find markets unprepared. In this situation, GBP/USD has room to the downside. An indication of contraction in the largest sector is already worrisome enough to move the pound beyond the limited and short-lived reactions it experienced recently in response to data.

A score of around 51 or even as high as 54 might have the regular short-lived, limited impact. Only a level above 55, which is quite unlikely, could send Serling higher for more than a short while.

All in all, the Services PMI data could serve as a distraction from Brexit, but more likely than not, an adverse one.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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