Pound Sterling should benefit in a more sustainable way if the PMIs continue to perform so well – Commerzbank

GBP/USD rallied to its highest level in nearly two weeks above 1.2770 after robust preliminary UK PMI data for January on Wednesday but staged a downward correction later in the session. Economists at Commerzbank analyze Pound Sterling’s (GBP) outlook.

Increasing chances for the British economy to see better times in the coming months

On Wednesday, the Pound saw a significant short-term rally after the PMI for the services sector jumped to 53.8 points. This means that it is now well above the neutral level of 50, which certainly increases the chances that the British economy will see better times in the coming months. It also takes some of the pressure off the Bank of England to cut interest rates significantly again soon.

So why was the GBP unable to hold on to its gains? The latest surprise was just a continuation of the uptrend that started a few months ago and therefore does not allow for a real fundamental reassessment.

Of course, the longer-term outlook could change over the course of several months. If the PMIs continue to perform so well, this should eventually be reflected in the economic data. And then the Pound should benefit more sustainably. Although this is not our base case, the chances of this happening increase with each new positive reading.