GBP/USD – Pound Slips as US Manufacturing PMI Improves

The British pound has posted significant losses in the Tuesday session. In the North American session, GBP/USD is trading at the 1.22 line. On the economic front, British Manufacturing PMI improved to 56.1, easily beating the forecast of 53.3 points. In the US, ISM Manufacturing PMI rose to 54.7 points. On Wednesday, the UK will release Construction PMI, with a forecast of 52.6 points. In the US, the Federal Reserve will publish the minutes of its last policy meeting.

The British economy continues to defy the naysayers, who predicted gloom-and-doom forecasts after the Brexit vote, which saw Britain vote to leave the European Union. However, the UK economy has managed quite well in the interim, posting decent numbers in the third and fourth quarters. The New Year has started off on a positive note, with British Manufacturing PMI climbing to 56.1 points in December. This marked the highest level since June 2014. At the same time, the British pound has taken a tumble, losing 18 percent of its value since the historic June vote. With Britain and the European Union set to discuss the details of the departure early next year, the markets will be nervously waiting for the negotiations to begin. British Prime Minister Theresa May has said she wants to trigger Article 50, the mechanism for leaving the EU, by the end of March. However, with plenty of ill will in Europe towards Britain, it’s questionable whether the exit process will be smooth and orderly, which could mean trouble for the wobbly British pound in the upcoming months.

The spotlight will be on the Federal Reserve on Wednesday, with the release of the minutes from the December policy meeting, when the Fed finally raised rates for the first time since December 2015. Analysts will be combing through the minutes, looking for clues regarding future monetary policy. The US economy is performing very well, and the markets are hopeful that this continues as Donald Trump takes office. Trump’s economic policies remain sketchy, although he has promised to increase fiscal spending while lowering taxes. If the economy’s positive momentum continues in early 2017, the Fed could be inclined to raise rates another quarter point in order to prevent the economy from overheating. A rate hike would likely lead to broad gains for the US dollar.

Dollar Finds its Mojo

UK Risks Losing EU Funding

GBP/USD Fundamentals

Tuesday (January 3)

  • 4:30 British Manufacturing PMI. Estimate 53.3. Actual 56.1
  • 9:45 US Final Manufacturing PMI. Estimate 54.2. Actual 54.3
  • 10:00 US ISM Manufacturing PMI. Estimate 53.7. Actual 54.7
  • 10:00 US Construction Spending. Estimate 0.5%. Actual 0.9%
  • 10:00 US ISM Manufacturing Prices. Estimate 55.6. Actual 65.5

Wednesday (January 4)

  • 4:30 British Construction PMI. Estimate 52.6
  • 14:00 US FOMC Meeting Minutes

*All release times are EST

* Key events are in bold

GBP/USD for Tuesday, January 3, 2017

GBP/USD January 3 at 10:35 EST

Open: 1.2279 High: 1.2306 Low: 1.2196 Close: 1.2203

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.1844 1.1943 1.2111 1.2272 1.2351 1.2471
  • GBP/USD posted slight losses in Asian session but recovered in European trade. GBP/USD has posted strong losses in North American trade
  • 1.2111 is providing support
  • 1.2272 has some breathing room following losses by GBP/USD in the North American session

Further levels in both directions:

  • Below: 1.2111, 1.1943 and 1.1844
  • Above: 1.2272, 1.2351, 1.2471 and 1.2620
  • Current range: 1.2111 to 1.2272

OANDA’s Open Positions Ratio

GBP/USD ratio is showing gains in long positions. Currently, long positions have a strong majority (63%). This is indicative of trader bias towards GBP/USD reversing directions and moving upwards.

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.