GBP up on services data

Good Morning.

We have started today with positive news from the UK as services PMI came in above expectations. This has bolstered the case for higher interest rates in the UK and has pushed the pound towards a strong resistance area of $1.6282.

Activity in Britain’s dominant services sector expanded at its fastest pace in eight months in January as business recovered after December’s snow disruption.

Sterling rose around 0.5% (70 pips) on the data to it’s highest since the Nov 5 peak of $1.63, with a break above this rate taking the market to its highest level in over 12 months.

It’s fair to bet that sterling may drift higher across the board in line with early expectations of Bank of England tightening. Resistance will play a part of course, with braking above this level proving difficult.

Dollars woes continued with the euro hovering not far below a 12-week high overnight as the market await the European Central Bank meeting and subsequent news conference, where hawkish comments could give it a further boost.

Fed Chairman Ben Bernanke will speak shortly after the ECB chief Jean Clausde Trichet and its thought that Bernanke will reaffirm the bank’s policy and is still focussed on boosting growth, which may weigh on the dollar further.

Market watchers will be looking for any hints on when the euro zone interest rates may rise, given Trichet’s recent warnings on the need to take on inflationary pressure. Accelerating inflation and funding problems for peripheral banks are set to top the agenda at the meeting.

More on this will be reported tomorrow, and no doubt the market picture will look a lot different to what we are seeing at the moment.