GBP/USD – Jumps After Solid UK Data, Weak US Numbers

The British pound continues to rally against the US dollar as we begin the new trading week. GBP/USD has gained over one cent, and has pushed across the 1.53 line in Monday’s North American session. The pound has not been at this level since mid-May. The British currency pulled higher as British Manufacturing PMI beat the estimate, and racked up further gains after US ISM Manufacturing PMI failed to meet expectations.

The pound started the week on the right foot, gaining ground after a positive British Manufacturing PMI. The key index barreled across the 50-point level for the first time since February, posting a reading of 51.3 points. This was above the estimate of 50.3 points. Meanwhile, the US posted its first key release of the week, and the results were less than impressive. ISM Manufacturing PMI, the first major release out of the US this week, fell from 50.7 points to 49.0 points. This was the first reading in 2013 which was below 50, which indicates contraction. The pound moved higher after this disappointing US release.

In the US, there is growing speculation that the Federal Reserve could scale back quantitative easing in the next few months. Fed policymakers, including Fed Chair Bernanke, continue to hint that QE could be wound up in the next few months. However, with the US continuing to alternate between good and bad economic releases, the Fed is unlikely to act before it is convinced that the US economy is improving. Much of the volatility we are seeing from the US dollar against the major currencies can be attributed to market uncertainty about what action the Fed will take, and further hints from the Fed about scaling back QE will continue to impact on the currency markets.

In the Eurozone, the markets are eagerly awaiting the ECB policy meeting later this week. EUR/USD has gone on wild rides after recent meetings, even though interest rates did not budge, and we could see some volatility after this meeting as well. There has been more talk of negative interest rates, and Mario Draghi and other policy makers have hinted that they are open to the idea. The ECB’s deposit rate is currently at zero, and if the ECB goes any lower, it would be the first central bank to introduce negative interest rates. Such a move would hurt the euro, as investors would likely look outside the Eurozone to get more attractive rates for their funds. If Draghi repeats his openness to the concept when the ECB meets, we could see EUR/USD push higher.

GBP/USD for Monday, June 3, 2013

GBP/USD June 3 at 15:15 GMT

GBP/USD 1.5314 H: 1.5314 L: 1.5196

GBP/USD Technical

GBP/USD has started the week with sharp gains, and has broken past the 1.53 line. The pair is testing support at 1.5309. There is a stronger support line at 1.5203, protecting the 1.52 level. GBP/USD is facing resistance at 1.5432. This line has held firm since early May.

Current range: 1.5309 to 1.5432

Further levels in both directions:

• Below: 1.5309, 1.5203, 1.5111, 1.5047, 1.5000 and 1.4873
• Above: 1.5432, 1.5577, 1.57 and 1.5802

OANDA’s Open Positions Ratio

The GBP/USD ratio is not showing much movement in the Monday session. This lack of activity is not reflected in what we are seeing from the pair, as the pound has risen sharply against the US dollar. If the pair’s volatility continues, we can expect the ratio to swing into action as well.

The pound burst out of the gates on Monday, and continues to rally against the US dollar. The pair may not get much of a rest, as the UK releases Construction PMI early on Tuesday. If this index also posts a solid performance, we could see the pound push higher.

GBP/USD Fundamentals

• 8:30 British Manufacturing PMI. Estimate 50.3 points. Actual 51.3 points
• 13:00 US Final Manufacturing PMI. Estimate 52.0 points. Actual 52.3 points
• 14:00 US ISM Manufacturing PMI. Estimate 50.6 points. Actual 49.0 points
• 14:00 US Construction Spending. Estimate 1.1%. Actual 0.4%
• 14:00 US ISM Manufacturing Prices. Estimate 49.6 points. Actual 49.5 points
• All Day: US Total Vehicle Sales. Estimate 15.2M

*Key releases are highlighted in bold

*All release times are GMT

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