GBP/USD – Soft UK PMI Drags Down Pound

GBP/USD has posted strong losses on Friday, as the pair trades in the low-1.68 range in the North American session. The pound has lost about 150 points this week as it trades at six-week lows against the US dollar. In economic news, British Manufacturing PMI slipped to 55.4 points, marking a four-month low. It’s a busy day in the US, highlighted by three key events – Nonfarm Employment Change, Unemployment Rate and ISM Manufacturing PMI. We’ll also get a look at consumer confidence levels, with the release of UoM Consumer Sentiment.

British PMIs are closely tracked by analysts, as they are important gauges of the health of key sectors in the British economy. The Manufacturing PMI softened in March, dropping to 55.4 points, short of the estimate of 57.2 points. This was the indicator’s lowest level since March. The weak reading follows disappointing housing inflation data. Nationwide HPI posted a gain of just 0.1%, its weakest performance in over a year. The markets had forecast a healthy gain of 0.6%.

On Thursday, Unemployment Claims came in at 302 thousand, higher than the previous release but very close to the estimate of 303 thousand. Earlier in the week, ADP Nonfarm Payrolls posted a sharp drop. If the official NFP release follows suit and misses the estimate of 234 thousand, the US dollar could give up some if its recent gains. Meanwhile, US GDP exceeded expectations in the second quarter, as the economy expanded at an annual rate of 4.0%. This easily beat the estimate of 3.1% and marked the strongest quarter of economic growth since Q4 of 2009. The boost in economic activity was helped by strong consumer confidence and business investment, as well as solid employment data. The US dollar took advantage of the strong numbers, posting gains against the pound and other major currencies.

The Federal Reserve released a policy statement on Wednesday, with the Fed sounding somewhat dovish in tone. Policymakers acknowledged lower unemployment levels, but noted that “there remains significant underutilization of labor resources” in the economy. The Fed statement reinforces the view that the US central bank is in no rush to raise interest rates after the termination of QE, which is expected in October. As well, the Fed said that inflation levels have moved somewhat closer to the Fed’s target of 2.0%.

 

GBP/USD for Friday, August 1, 2014

GBP/USD August 1 at 11:10 GMT

GBP/USD 1.6839 H: 1.6891 L: 1.6822

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6556 1.6700 1.6825 1.6920 1.7000 1.7183

 

  • GBP/USD edged lower in the Asian session and has posted stronger losses in European trading.
  • On the downside, 1.6825 was breached earlier in the European session and remains under strong pressure. The round number of 1.67 is stronger.
  • 1.6920 has strengthened as resistance as the pound continues to lose ground.
  • Current range: 1.6825 to 1.6920.

Further levels in both directions:

  • Below: 1.6825, 1.6700, 1.6556 and 1.6484
  • Above: 1.6920, 1.7000, 1.7183 and 1.7228

 

OANDA’s Open Positions Ratio

GBP/USD is pointing to gains in short positions in Friday trade, reversing the direction seen yesterday. This is consistent with the movement of the pair, as the pound continues to lose ground. The majority of open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar continuing to move higher against the sagging pound.

 

GBP/USD Fundamentals

  • 8:30 British Manufacturing PMI. Estimate 57.2 points. Actual 55.4 points.
  • 12:30 US Nonfarm Employment Change. Estimate 231K.
  • 12:30 US Unemployment Rate. Estimate 6.1%.
  • 12:30 US Average Hourly Earnings. Estimate 0.2%.
  • 12:30 US Core PCE Price Index. Estimate 0.2%.
  • 12:30 US Personal Spending. Estimate 0.5%.
  • 12:30 US Personal Income. Estimate 0.4%.
  • 13:45 US Final Manufacturing PMI. Estimate 56.3 points.
  • 13:55 US Revised UoM Consumer Sentiment. Estimate 81.5 points.
  • 13:55 US Revised UoM Inflation Expectations.
  • 14:00 US ISM Manufacturing PMI. Estimate 56.1 points.
  • 14:00 US Construction Spending. Estimate 0.4%.
  • 14:00 US ISM Manufacturing Prices. Estimate 58.6 points.
  • All Day – US Total Vehicle Sales. Estimate 16.8M.

* Key releases are highlighted in bold
*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.