Forex Market: GBP/USD trades little changed ahead of BoE meeting and after UK services data

The pound traded little changed against the US dollar before Bank of England officials start a two-day meeting today and after data revealed the UK services sector expanded at a faster-than-expected pace last month.

GBP/USD touched a session high at 1.6694 at 09:09 GMT, after which the pair trimmed daily gains to trade little changed at 1.6672 at 10:28 GMT, adding 0.04% for the day. Support was likely to be received at March 4th low, 1.6641, while resistance was to be met at March 4th high, 1.6717.

All 52 economists participated in a Bloomberg survey, forecast Bank of England will maintain the benchmark interest rate at a record low 0.5% tomorrow, where its been since March 2009.

The pound received support after the Chartered Institute of Purchasing and Supply (CIPS) reported today that services activity in the UK declined at a slower-than-projected pace in February, easing some concerns over the economic outlook. The corresponding PMI came in at 58.2 in February, while analysts had predicted the index to decline to 58.0 from 58.3 in the previous month. Values above the key level of 50.0 are indicative of expansion in activity. Februarys reading was the weakest since June, but the slowdown can be attributed mainly to heavy flooding in many regions of the UK, which experienced unprecedented amounts of rainfall last month.

However, yesterday, the CIPS index of construction output, a gauge of UK construction activity, fell to 62.6 in February from 64.6 in January, which was the strongest level since August 2007. Analysts had predicted a smaller decline to 63.2 in February.

A report by the UK Nationwide Building Society on Friday, revealed that home prices rose 0.6% in February, capping a 14th month of advances and after January’s reading was revised up to a 0.8% increase from initial estimate of 0.7%. The average value of UK homes reached 177 846 pounds or approximately $296 000 this month, which is a 9.4% increase from a year ago. Analysts had projected that house prices will rise by 9% in February, after a 8.8% gain in the previous month. The boost in the UK property market was mainly driven by low borrowing costs and easier availability of loans for home purchases.

In its quarterly inflation report, Bank of England revised its forward guidance, replacing the 7% unemployment threshold with a range of economic indicators, including spare capacity.

BoE said the unemployment rate will probably fall below 7% in the first quarter of this year, but at the same time underscored there was “scope to absorb spare capacity further before raising bank rate” from the current record-low 0.5%. BoE estimated an output gap between 1% and 1.5% of UK gross domestic product.

The central bank also raised its forecast for the UK economic growth in 2014 to 3.4% from 2.8% projected in November and predicted the first increase of interest rates will come in April 2015. Bank of England projected inflation of 1.9% in the next three years, below the central bank target of 2%.

The sterling has advanced 13% in the past year, being the best performer of 10-developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, while the US dollar rose mere 0.9%.

Meanwhile, demand for safe haven assets faded, after Russian President Vladimir Putin said he saw no immediate need to invade Ukraine. These comments indicated that the Ukraine crisis will not immediately escalate. Vladimir Putin said that troops, stationed on the Crimean peninsula, have only been securing their bases. On the other hand, gunmen who have taken control over crucial infrastructure and surrounded military installations were acting independently, according to Russia’s President.

Companies operating in the US private sector probably added 158 000 new jobs in February, according to the median estimate of experts, after a month ago employers added 175 000 workers to payrolls. The official figures by the Automatic Data Processing Inc. (ADP) are scheduled to be released at 13:15 GMT today.

In addition, activity in the US sector of services probably slowed down in February, with the corresponding non-manufacturing index reaching a reading of 53.5, down from 54.0 registered in January. The Institute for Supply Management (ISM) is expected to release the official numbers at 15:00 GMT today. Higher than expected readings will certainly provide support to greenback’s demand.

The ISM reported on Monday that manufacturing activity in the United States expanded at a faster than projected pace in February, which eased concerns that economy may remain vulnerable. The corresponding PMI advanced to a reading of 53.2 last month from 51.3 in January, while analysts had expected that the index will climb less, to 52.0 in February. Values above the key level of 50.0 are indicative of expansion in activity.

Elsewhere, having touched a daily high at 0.8997 at 0:34 GMT, also the highest point since February 26th, AUD/USD was trading at 0.8967 at 7:16 GMT, up 0.17% for the day. Support was likely to be received at March 4th low, 0.8941, while resistance was to be encountered at February 26th high, 0.9026.