GBP/USD – Pound Ticks Lower as UK Construction PMI Slips

GBP/USD has recorded small losses in the Wednesday session. In North American trade, the pair is trading at 1.2920. On the release front, British Services PMI posted a reading of 53.4, shy of the forecast of 53.6. Later in the day, the Federal Reserve releases the minutes of its June policy meeting. On Thursday, the US releases three key indicators – ADP Nonfarm Payrolls, unemployment claims, and the ISM Non-Manufacturing PMI.

This week’s British PMI reports are raising concerns, as all three PMIs pointed to slower growth in June. The PMIs gauge the strength in the manufacturing, construction and services sectors, and all three reports pointed to expansion, but at a weaker pace than in May. The double whammy of the British election and the start of Brexit talks with Europe have increased uncertainty and resulted in a decrease in new orders across the economy, as underscored by the softer PMI readings. Weaker economic conditions will compound the difficult situation of the BoE with regard to interest rate policy – the economy may not be ready for a rate hike, but inflation, which is running at a 3% clip, is also hurting the economy and is above the BoE’s target of 2%. BoE policymakers have not hesitated to air their differences in public, with BoE Governor Mark Carney at odds with MPC member Ande Haldane and other members regarding raising rates. Just a few weeks ago, Carney went on record as adamantly opposed to raising rates. However, he has since softened his approach, and this triggered a strong pound rally last week, as the currency punched above the 1.30 level for the first time since late May.

The Federal Reserve will be back in the spotlight on Wednesday, with the release of the minutes from the June meeting. Federal Reserve policymakers have consistently projected one final rate hike in 2017, but the markets remain skeptical. The odds of a December rate hike are pegged at only 50%, while the likelihood of an increase in September is just 18%. The US economy slowed down in the first quarter, and there are signs that Q2 will also be soft. Consumer spending, which comprises two-thirds of US economic growth, remains soft. Another sore point in the economy is inflation, which remains below the Fed’s target of 2%. In June, Fed Chair Janet Yellen shrugged off inflation worries, saying that she expected inflation to remain soft due to temporary factors. The dollar was broadly higher after the June rate statement, as Fed policymakers were surprisingly upbeat about the economy and dismissed concerns about low inflation levels. Traders should keep a close eye on the minutes, which could be a market-mover. Will the Fed minutes present a positive view of the US economy? If yes, the dollar could respond with gains.

 

GBP/USD Fundamentals

Wednesday (July 5)

  • 4:30 British Services PMI. Estimate 53.6. Actual 53.4
  • 10:00 US Factory Orders. Estimate -0.5%. Actual -0.8%
  • Tentative – US IBD/TIPP Economic Optimism. Estimate 51.6
  • 14:00 FOMC Meeting Minutes

Thursday (July 6)

  • 8:15 US ADP Non-Farm Employment Change. Estimate 184K
  • 8:30 US Unemployment Claims. Estimate 243K
  • 10:00 US ISM Non-Manufacturing PMI. Estimate 56.5

*All release times are EDT

*Key events are in bold

 

GBP/USD for Wednesday, July 5, 2017

GBP/USD July 5 at 11:20 EDT

Open: 1.2935 High: 1.2947 Low: 1.2893 Close: 1.2922

 

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2571 1.2706 1.2865 1.2946 1.3058 1.3121
  • GBP/USD edged higher in the Asian session but gave up those gains. The pair has shown limited movement in the European and North American sessions
  • 1.2865 is providing support
  • 1.2946 was tested earlier in resistance and is a weak line

Further levels in both directions:

  • Below: 1.2865, 1,.2706 and 1.2571
  • Above: 1.2946, 1.3058, 1.3121 and 1.3279
  • Current range: 1.2865 to 1.2946

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Wednesday session. Currently, short positions have a majority (62%), indicative of trader bias towards GBP/USD continuing to move downwards.

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.