GBP/USD – Pound Surges on Strong UK Manufacturing PMI

GBP/USD has posted sharp gains on Thursday, as the pair trades at 1.3250. On the release front, British Manufacturing PMI jumped to 53.3 points, well above expectations. In the US, unemployment claims came in at 263 thousand, within expectations. Later in the day, the US releases US ISM Manufacturing PMI. On Friday, the US releases three key employment indicators – the unemployment rate, Average Hourly Earnings and the Nonfarm Employment Change.

Despite the deep concerns over the fallout from Brexit, British data remains solid and continues to defy the doomsayers. Manufacturing PMI jumped to 53.3 points, surprising the markets which had expected a weak reading of 49.1 points. This marked the key indicator’s strongest reading since October 2015. On the consumer front, British consumer confidence showed improvement in August and even beat the market forecast. The reading of minus -7 points to pessimism, but marked a sharp improvement over the July reading of minus -12 and edged above the estimate of minus -8. The British consumer continues to shop and spend, as underscored by strong readings from CBI Realized Sales and retail sales. Recent inflation and employment numbers have also been solid. Next up is the Construction PMI on Friday.

US numbers continues to enjoy a solid week. Employment numbers have been solid, as the ADP payroll report and unemployment claims were within expectations. These releases preceded the all-important official Nonfarm Employment Change, which will be published on Friday. On the housing front, Pending Home Sales gained 1.3%, well above the forecast of 0.7%, marking a 3-month high. On Tuesday, CB Consumer confidence jumped to 1o1.1 points in August, above the forecast of 99.7 points. It marked the indicator’s highest level since September 2015 and points to strong confidence on the part of the US consumer.

After an upbeat speech from Fed chair Janet Yellen last week at the Jackson Hole summit, a September rate hike is back on the table. Yellen’s message to the markets was refreshingly clear, as she said that the case for a rate increase had “strengthened in recent months”. Yellen noted that the key economic indicators were performing well – the labor market was approaching maximum employment, inflation was steady, and consumer spending remained solid. Still, Yellen did not provide any timeline on a rate hike nor did she spell out what the Fed wants to see before pressing the rate trigger. The Fed’s signal to the markets has raised the odds of a rate move, according to the CME Group FedWatch tool, with a September hike priced at 30% in September and 57% for a December hike. However, given that any move by the Fed will be data-dependent, US numbers ahead of the Fed policy meeting on September 21 could significantly change the rate outlook.

GBP/USD Fundamentals

Thursday (September 1)

  • 4:30 British Manufacturing PMI. Estimate 49.1. Actual 53.3
  • 7:30 US Challenger Job Cuts. Actual -21.8%
  • 8:30 US Unemployment Claims. Estimate 265K. Actual 263K
  • 8:30 US Revised Nonfarm Productivity. Estimate -0.6%. Actual -0.6%
  • 8:30 US Revised Unit Labor Costs. Estimate 2.0%. Actual 4.3%
  • 9:45 US Final Manufacturing PMI. Estimate 52.1. Actual 52.0
  • 10:00 US ISM Manufacturing PMI. Estimate 52.0
  • 10:00 US Construction Spending. Estimate 0.6%
  • 10:00 US ISM Manufacturing Prices. Estimate 54.5
  • 10:30 US Natural Gas Storage. Estimate 38B 
  • All Day – US Total Vehicle Sales. Estimate 17.2M 

Friday (September 2)

  • 8:30 US Average Hourly Earnings. Estimate 0.2%
  • 8:30 US Nonfarm Employment Change. Estimate 186K
  • 8:30 US Unemployment Rate. Estimate 4.8%

*All release times are EDT

* Key events are in bold

GBP/USD for Thursday, September 1, 2016

GBP/USD September 1 at 9:50 GMT

Open: 1.3132 High: 1.3270 Low: 1.3126 Close: 1.3252

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3064 1.3142 1.3219 1.3327 1.3480 1.3533
  • GBP/USD was flat in the Asian session. The pair posted sharp gains in the European session, breaking through two resistance lines. In North American trade, the pair continues to move higher.
  • 1.3219 is a weak support line
  • There is resistance at 1.3327

Further levels in both directions:

  • Below: 1.3219, 1.3142, 1.3064 and 1.2938
  • Above: 1.3327, 1.3480 and 1.3533
  • Current range: 1.3219 to 1.3327

OANDA’s Open Positions Ratio

GBP/USD ratio is showing movement towards short positions on Thursday, consistent with the sharp gains posted by GBP/USD. Long and short positions are evenly split, indicative of a lack of trader bias as to what direction will take next.

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.