The British pound has recorded considerable losses in the Monday session. In North American trade, GBP/USD is trading at 1.3267, down 0.97% on the day. On the release front, British Manufacturing PMI slowed to 55.9, but still fell short of the forecast of 56.3 points. There was better news in the US, as ISM Manufacturing PMI accelerated to 60.8, beating the forecast of 57.9. This was the indicator’s highest level since April 2011. On Tuesday, the UK releases Construction PMI, which is expected at 51.2 points. As well, the BoE will release the minutes of the quarterly Financial Policy Committee meeting.
With investors keeping a nervous glance on the slow pace of the Brexit negotiations, any key British indicators which fall short of expectations could send the pound sharply lower. This was the case on Monday, as British Manufacturing PMI softened and missed the forecast. Although the reading of 55.9 indicates respectable expansion in the manufacturing sector, perception is key in the markets, and negative sentiment about the British economy could spell trouble for the pound.
Prime Minister Theresa May is putting on a brave face, and said in a weekend BBC interview that the Conservative party is united behind her leadership. However, there are reports that May is facing increasing unrest in the party, and could be gone as leader within 12 months. The Conservatives are gathered this week in Manchester for a party gathering. May has been widely blamed for the Conservative’s poor showing in the June election, and has failed to present a consistent line in the Brexit negotiations with the European Union. The Brexit talks have been tortuous until now, with little progress to report after several rounds of negotiations. Key sticking points include the amount that Britain will pay upon leaving, whether the European High Court will have jurisdiction over EU citizens living in Britain, and the border with Ireland.
The US dollar continues to gain ground against the pound, as GBP/USD has dropped to its lowest level since September 14th. Last week, the dollar gained some ground last week from an unexpected source – President Donald Trump. Trump has all but given up on his health care proposal, as the plan lacks enough support from Republican lawmakers. Next on the Trump Express is tax reform, which was a key campaign plank. Last week, Trump proposed a major overhaul of the US tax code, which includes reducing the corporate tax rate from 35 percent to 20 percent, as well as a 25 percent tax rate for small businesses, such as partnerships. Like other Trump proposals, the tax plan was sketchy on details, including how the tax plan would be paid for. With Democrats and some Republicans wary of Trump’s tax agenda, it’s likely his that tax reform proposal will face a stiff battle in Congress. Still, the markets like the idea of lower taxes, and the US dollar posted back-to-back weekly gains against the pound.
Sunday (October 1)
- 5:00 British Prime Minister Theresa May Speaks
Monday (October 2)
- 4:30 British Manufacturing PMI. Estimate 56.3. Active 55.9
- 9:45 US Final Manufacturing PMI. Estimate 53.0. Actual 53.1
- 10:00 US ISM Manufacturing PMI. Estimate 57.9. Actual 60.8
- 10:00 US Construction Spending. Estimate 0.4%. Actual 0.5%
- 10:00 US ISM Manufacturing Prices. Estimate 64.5. Actual 71.5
- 14:00 US FOMC Patrick Kaplan Speaks
Tuesday (October 3)
- 4:30 British Construction PMI. Estimate 51.2
- 4:30 British FPC Meeting Minutes
*All release times are GMT
*Key events are in bold
GBP/USD for Monday October 2, 2017
GBP/USD October 2 at 12:10 EDT
Open: 1.3397 High: 1.3402 Low: 1.3256 Close: 1.3267
GBP/USD edged higher in the Asian session but gave up this gains. The pair recorded considerable losses in the European session and continues to head lower in North American trade.
- 1.3224 is providing support
- 1.3347 has switched to a resistance role following losses by GBP/USD on Monday
Further levels in both directions:
- Below: 1.3224, 1.3121 and 1.3022
- Above: 1.3347, 1.3444, 1.3514 and 1.3667
- Current range: 1.3224 to 1.3337
OANDA’s Open Positions Ratio
GBP/USD ratio is unchanged in the Monday session. Currently, short positions have a majority (62%), indicative of trader bias towards GBP/USD continuing to move to lower ground.