GBP/USD has leveled off after sustaining sharp losses on Friday. The pound shed about 160 points after the release of a weak Manufacturing PMI release, which saw the key index plunge to a four-month low. The pair has managed to stem the downslide, and was trading in the mid-1.50 range. Construction PMI was no better, dropping to its lowest level since 2009. In the US, the only releases on Monday are speeches by two members of the Federal Reserve.
It’s only been a few months since the “fiscal cliff” rocked the US, and already another fiscal crisis is brewing on Capitol Hill. The fiscal cliff rattled the markets and sent currencies spinning out of control early in the new year. The US budget crisis was averted but never really went away, and the newest installment is called “sequestration”. Democrats and Republicans picked up where they left off in January, failing to reach agreement and then point fingers at each other for the impasse. This past Friday, meanwhile, $85 billion in automatic spending cuts kicked in. The core issues, spending cuts and tax reforms, have not changed and continue to divide US lawmakers along party lines. Republicans want to make major cuts to federal social programs such as Medicaide, while Democrats insists on tax hikes as part of any deficit reduction plan. The negotiations are set to continue on Capitol Hill this week, as Congress tries to break the budget impasse.
There was only one release out of the UK on Monday, and it didn’t add any cheer to the markets. Construction PMI slumped to its worst reading since November 2009, dropping to 46.8 points. This was well below the estimate of 49.2 points. This weak release comes on the heels of Friday’s Manufacturing PMI, which also surprised the markets with a dismal performance. Manufacturing PMI came in at 47.9 points, disappointing the markets, which had expected some expansion in the sector, with an esimate of 51.0 points. The pound fell sharply after the Manufacturing PMI, but so far at least, has not repeated the performance after the weak Construction PMI release. The weak PMIs will raise concerns that the UK may have entered its third recession in the past four years. If this week’s releases continue to disappoint, we could see the pound lose more ground.
In Italy, the political deadlock continues. Beppe Grillo, head of Italy’s Five Star Movement, was in the weekend headlines after suggesting that Italy hold a referendum on whether to remain in the Eurozone. Italy is staggering under a debt of two trillion euros, and Grillo has called for the country to renegotiate the debt. Grillo, who led his party to a stunning showing in last week’s election, can now play kingmaker in any coalition talks, and his anti-euro rhetoric can no longer be dismissed. The political picture remains a stalemate, and if there is no progress soon, we can expect talk of new elections in June to get louder. Continued uncertainty in Italy is bad for the markets, and if the political quagmire continues, look for the safe-haven US dollar to broadly improve against the major currencies.
GBP/USD for Monday, March 4, 2013
GBP/USD March 4 at 15:20 GMT
1.5058 H: 1.5872 L: 1.5000
The pound continues to perform poorly against the US dollar, and is in real danger of dropping below 1.50, a psychologically important level. The pair is facing resistance at 1.5138. This line has strengthened as the pound continues to lose ground. On the downside, the support line of 1.5053 is under pressure, and the pair briefly broke through earlier on Monday. The next support level is at 1.4988.
- Current range: 1.5053 to 1.5138
Further levels in both directions:
- Below: 1.5053, 1.4988, 1.4880 and 1.4818
- Above: 1.5138, 1.5203, 1.5309, 1.5395, 1.5481 and 1.5565
OANDA’s Open Positions Ratios
The GBP/USD ratio is very quiet as we begin the new trading week. We are seeing this reflected in the currency pair, as the pair has shown some modest movement in both directions in Monday trading. The ratio continues to point to a strong bias in favor of long positions, indicative of trader sentiment expecting the pound to show some improvement against the US dollar.
The UK economy continues to struggle, as underscored by the most recent Manufacturing and Construction PMIs, both of which were very weak. The pound has dipped below the 1.50 level this week, and we could find the British currency in 1.49 territory as early as this week.
- 9:30 British Construction PMI. Estimate 49. 2 points. Actual 46.8 points,
- 13:00 US FOMC Member Janet Yellen Speaks.
- 18:15 US FOMC Member Jerome Powell Speaks.
*Key releases are highlighted in bold
*All release times are GMT
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