GBP/USD – Pound Quiet Ahead of British Manufacturing Production

GBP/USD continues to have a quiet week, as the pair trades at 1.3340 on Tuesday. On the release front, the sole British release is the 10-year bond auction, which dropped to 0.69%. Today’s key event is US ISM Non-Manufacturing PMI. The indicator is expected to remain steady, with an estimate of 55.4 points.

The British manufacturing sector has shown signs of improvement, as the August Manufacturing PMI jumped to 53.3 points, easily beating the forecast of 49.1 points. This solid reading pointed to expansion in the manufacturing industry for the first time in three months. Will Manufacturing Production follow suit on Wednesday? The indicator has posted back-to-back declines, and another drop is expected in the July reading, with an estimate of -0.4%. If the indicator does surprise with a reading in positive territory, the pound could gain ground. The currency has been steadily improving recently and is trading close to its highest level since July 15. The Bank of England will also be in the spotlight on Wednesday, as BoE Governor Mark Carney will discuss inflation before a parliamentary committee. With the bank’s rate cut in August still fresh in the minds of market players, Carney’s remarks will be closely monitored and could result in some volatility from GBP/USD.

The US labor market has been strong for most of 2016, but that trend hit a nasty road bump on Friday, as US job data for August was dismal. Nonfarm Payrolls plunged to 151 thousand in August, down from 255 thousand a month earlier. This was well short of the forecast of 180 thousand. 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. Will the Fed  look the other way 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, many FOMC members remain uneasy about a rate hike, especially given the persistent lack of inflation in the economy. Key inflation indicators will be released in mid-September, just before the Fed policy meeting on September 21. These releases could play a critical role in determining if the Fed presses the rate trigger this month, or decides to revisit the rate question in December, which would be exactly a year from the last rate hike.

GBP/USD Fundamentals

Tuesday (September 6)

• 5:33 British 10-year Bond Auction. Actual 0.69%
• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.4
• 10:00 US IBD/TIPP Economic Optimism. Estimate 48.6
• 10:00 US Labor Market Conditions Index

Wednesday (September 7)

• 4:30 British Manufacturing Production. Estimate -0.4%
• 9:15 BOE Inflation Report Hearings

*All release times are EDT

* Key events are in bold

GBP/USD for Tuesday, September 6, 2016

GBP/USD September 6 at 6:40 EDT

Open: 1.3310 High: 1.3352 Low: 1.3301 Close: 1.3336

GBP/USD Technical

• GBP/USD has posted small gains in the Asian and European sessions
• 1.3327 has switched to a support level after small gains by GBP/USD
• 1.3480 is a strong resistance line

Further levels in both directions:

• Below: 1.3327, 1.3219, 1.3142 and 1.3033
• Above: 1.3480, 1.3667 and 1.3835
• Current range: 1.3327 to 1.3480

OANDA’s Open Positions Ratio

GBP/USD ratio is showing slight gains in short positions. Currently, long and short positions are an even split, indicative of a lack of trader bias as to what direction GBP/USD 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.