GBP/USD consolidates daily gains near mid-1.35s

• Activity in the service sector in the U.K. remains healthy.
• Macroeconomic data from the U.S. come in mixed on Thursday.
• DXY struggles to recover from daily lows.

Following yesterday's 100-pip drop, the GBP/USD pair retraced a portion of its recent losses on Thursday as the GBP gathered strength on upbeat macroeconomic data during the European session. After refreshing its daily high at 1.3560, the pair went into a consolidation phase and was last seen trading at 1.3550, gaining 0.25% on the day.

Earlier today, the data released by Markit showed that the business activity in the service sector in the U.K. expanded at a faster-than-expected pace with the PMI data improving to 54.2 in December from 53.8 in November.

Although the market reaction to the data provided a boost to the GBP, the underlying details of the report painted a mixed picture and capped the pair's upside. "Digging a little deeper reveals that new orders are at the lowest level since the immediate aftermath of the Brexit vote, and that the rate of hiring has slipped to a nine-month low. This latter finding tallies with what the recent jobs reports have indicated, and suggests the weaker growth we saw through 2017 may be finally catching up with the previously-resilient labour market - although admittedly, it is still very early days," ING analysts noted.

On the other hand, despite the upbeat private sector employment growth numbers in the U.S., the US Dollar Index failed to recover its daily losses after a separate report showed that the service sector lost momentum and kept the selling pressure on the greenback alive. At the moment, the DXY is at 91.60, down 0.33% on the day.

On Friday, investors will be watching closely the NFP data from the United States. However, as reflected by today's market reaction, a positive reading by itself may not be enough to help the buck gather strength against its peers as the strong labor market is old news. Participants are likely to focus on the wage inflation, which is expected to rise 0.3% on a monthly basis in December.

Technical outlook

Valeria Bednarik, American Chief Analyst at FXStreet, writes, "the current 1.3540/50 region has proved to be a strong resistance in the past, which means that additional gains from here, could result in the pair retesting the weekly high at 1.3612, en route to 1.3653, 2017 high, should the dollar come under selling pressure. Below 1.3500, on the other hand, the risk turns towards the downside, with 1.3460 and 1.3420 as the next intraday supports."

Today's data from the U.S.

• ADP: Private sector employment increased by 250,000 jobs in December
• US-based employers announced 32,423 job cuts in December - Challenger, Gray & Christmas Inc.
• US: Weekly initial claims was 250,000, an increase of 3,000 from previous week
• US: Service sector business activity growth softens to seven-month low in Dec - Markit