GBP/USD – Pound Hits 7-Week High as Services PMI Jumps

GBP/USD has started the trading week with slight gains, punching above the 1.33 level. In Monday’s North American session, the pair is trading at 1.3330. On the release front, British Services PMI improved to 52.9 points, beating expectations. As well, the BRC Shop Price Index posted a decline of 2.0%. There are no US events on Monday, as the US markets are closed for Labor Day. ISM Non-manufacturing PMI.

The week started off with positive news in the UK, as British Services PMI rebounded in August, climbing to 52.9 points. This figure points to expansion in the services sector and marked a 4-month high. Last week, PMI reports from the construction and manufacturing sectors also beat expectations. 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. The British pound, which was hammered after the Brexit vote, has been steadily improving, and is currently trading at its highest level since July 15.

On Friday, US Nonfarm Payrolls plunged to 151 thousand in August, down from 255 thousand a month earlier. Wage growth also disappointed, as Average Hourly Earnings edged lower to o.1%, shy of the forecast of 0.2%. Clearly this was not positive news, but August job data is often unreliable and tends to miss market forecasts. This may have helped the US dollar dodge a bullet, as the greenback actually recorded gains against the euro on Friday, despite the dismal payrolls release. Will the Fed also give a “free pass” and ignore the weak job data? The markets apparently think so, as the odds of a rate hike this year are about the same after the payrolls report – the  the likelihood of a September hike is 20 percent, while a December increase is pegged at 60 percent. Still, even if the August payrolls release is overlooked, the Fed will find it hard to justify a rate increase strictly based on a robust job market. Stronger inflation numbers for August, for example, would make a rate hike an easier sell to Fed members who remain uneasy about raising rates. Key inflation indicators will be released in mid-September, just before the Fed policy meeting on September 21. A lot can happen between now and the Federal Reserve’s policy meeting on September 21, so key US releases will be under the market microscope ahead of the Fed’s rate decision. 

GBP/USD Fundamentals

Sunday (September 4)

• 19:01 BRC Shop Price Index. Estimate -2.0%

Monday (September 5)

• 4:30 British Services PMI. Estimate 49.1. Actual 52.9
• 19:01 British BRC Retail Sales Monitor

Tuesday (September 6)

• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.4

*All release times are EDT

* Key events are in bold

GBP/USD for Monday, September 5, 2016

GBP/USD September 5 at 9:40 EDT

Open: 1.3294 High: 1.3375 Low: 1.3290 Close: 1.3324

GBP/USD Technical

• GBP/USD recorded small gains in the Asian session and was choppy in the European session. The pair is unchanged in North American trade
• 1.3327 is under strong pressure as a resistance line. It could break be tested during the North American session
• 1.3219 is providing support

Further levels in both directions:

• Below: 1.3219, 1.3142 and 1.3033
• Above: 1.3327, 1.3480 and 1.3667
• Current range: 1.3219 to 1.3327

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged on Monday. Long positions have a majority (53%), indicative of slight trader bias towards GBP/USD continuing to move to higher levels.

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.