Sterling jumped against the dollar after UK service sector PMI for May came much better than the 52.5 that was forecast. The Index remained at 53.3 equal to the April reading. This helped boost the pound because it lends support to the view that there is a not so insignificant risk of further stimulus measures in the form of quantitative easing (QE) from the Bank of England.
The BOE will probably prefer to wait for risks to materialise as there is no urgent need to pull the trigger now and make sure that there are enough liquidity defences to help bridge the gap.
The service sector is the dominant segment of the UK economy and so the data is closely watched and considered by the BOE when deciding on monetary policy. The decent number is a blow for doves calling for more QE today.
The focus shifts to the BOE’s Monetary Policy Committee meeting later today when interest rates will be announced as well as hints on QE.
GBPUSD was boosted to 1.5480 after the data. Earlier in the session the pair touched a 1.5429 low pressured amid QE increase fears.