The pound sterling became the only major currency to beat the United States dollar at the start of the European session on Tuesday. The GBP/USD rose for about 0.5% to a 4 days high of 1.2114.
Meanwhile, the EUR/GBP slumped about 0.7% at 0.8800. GBP/JPY also formed a high record level since December 20. However, there are still doubts looming over the pound sterling's rally in terms of fundamentals.
S&P Global reported the results of the February 2023 preliminer Purchasing Managers' Index survey for the UK services sector. Based on that release, it skyrocketed from 48.7 to 53.3.
That was a way better than the estimation of 49.2. For your information, the PMI number below 50 indicates contraction, while a number above 50 indicates expansion.
UK has a Chance to Get Out from Recession
The united Kingdom Manufacturing PMI score also improved from 47.0 to 49.2, which was higher than the estimate of just 47.5. The UK's PMI score compositely exited recessionary territory with an increase from 48.5 to 53.0.
The services sector accounts for around 80% of the UK's economic activity. That is why; the improvement in this data set has had a major impact on analysts.
If the data is accurate and continues to improve, the UK could truly escape the threat of a recession that has been a scourge since last year. This could be a good news for many investors.
The S&P Global also stayed that falling economic uncertainty, falling inflation, and reduced supply disruptions, have boosted consumer demand. It also improved the business confidence.
BOE May Have a Hawkish Stance
The increase in consumer demand contributes to increasing orders and employment. Consequently, the Bank of England (BoE) will likely have to take a more hawkish stance.
The resilience of the economy and the strong inflation measurements in this survey increase the likelihood that the BoE will tighten monetary policy further. They are possibly more aggressive.
It is stated by Chris Williamson who worked. as a Chief Business Economist at S&P Global Market Intelligence. However, it is interesting that not all experts agree with it.
The Pantheon Macroeconomics maintained its projections of a decline in UK GDP for the first and second quarters of this year. Samuel Tombs gave a difgerent perspection.
PMI figure above 50 isn’t a Sign
Tomb is a Chief UK Economist at Pantheon Macroeconomics where he thought that it's too early to conclude that the UK economy is out of recession with just one PMI figure above 50.
PMI is only a rough measurement of the economic activity and is often overly influenced by sentiment. Right now, purchasing managers are likely to only feel relieved.
It is as the economic outlook is not as bad as expected in the fourth quarter (2022), as interest rate expectations. Besides that, the wholesale energy prices have fallen since then.
Meanwhile, the stock prices have risen as Tombs said lately. Elsewhere, the New Zealand dollar briefly stuck out to a daily high of 0.6245 in the Asian session.
NZ interest Rate Failed to be a Catalyst
However, then that currency receded back to the 0.6220 range when it entered the European session (February 22/). New Zealand's interest rate announcement failed to be a catalyst for the NZD/USD rally.
It is especially amidst the severity of the impact of the natural disaster that hit the two-island nation. New Zealand's central bank (RBNZ) this morning raised their interest rates from 4.25% to 4.75%.
That was in line with previous consensus estimates. The RBNZ also reiterated the need to raise interest rates again in the coming months in order to achieve the inflation target.
Unfortunately, there was no change whatsoever compared to the RBNZ's announcement in the previous meeting. The RBNZ still expects the highest interest rate to reach 5.5% in the second half of the year.
