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GBP/USD correction likely but GBP holds firm with the Euro

GBP/USD correction likely but GBP holds firm with the Euro

Sterling moves up into the 1.20 range against the weaker euro as investors bet on further quantitative easing in the UK. Some slightly better data in recent weeks has given the pound support and further hints from Mr. King that the Bank of England will pump more money into the economy seems to have given the pound support. The euro drifts lower against the USD after the European Central Bank pumps more cash into the system and as concerns regarding Greek austerity and the restructuring program continue.

Against the dollar, sterling was down 0.3 percent at $1.5910, with option barriers at $1.60 still holding and stops cited just below its 200-day moving average of $1.5896. More stops are said to be layered at $1.5875/80. GBP/USD has hit a three-and-a-half month high, now sitting in the 1.59 range. It is however open for a correction in the next few days.

On Thursday, the manufacturing PMI survey ticked down to 51.2 in February, below forecasts of 51.8, but held above the 50 level that divides expansion from contraction. Analysts said if the more important PMI survey for the dominant services sector due on Monday also mirrored the manufacturing sector activity, sterling would come under pressure.

“The UK manufacturing PMI was disappointing and if this is replicated by the more important PMI services indicator, we would expect sterling/dollar to come back under pressure,” “The pound is also expected to feel the effects of a broader scaling back of global investor optimism. As such the market is somewhat bearish on GBP/USD.

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