Forex Flash: UK service PMI in focus for pound ahead of BoE meeting - BTMU

Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the release of the service PMI surveys for February will be in focus for Europe this morning.

In particular, he feels that the UK service PMI survey could prove more market moving than normal given that it appears a close call as to whether the BoE will announce another GBP25.0 billion gilt purchase expansion on Thursday. He writes, “The release yesterday of the latest FLS usage and lending report for Q4 proved somewhat underwhelming with banks net lending to the UK households and PNFCs still contracting by GBP2.43 billion which at the margin strengthens the case to revert back to implementing more QE with the risk still present that the UK economy may contract again in Q1.”

Hardman comments that the negative impact of further QE from the BoE upon the pound in the near-term maybe less clear cut given that it has already fallen sharply by 6.0% on a trade-weighted basis during early 2013. The latest IMM report also revealed that speculative short pound positions have reached their highest level since October 2011 highlighting that it is becoming a very crowded trade.