GBP/USD – Pound Drops as UK Services PMI Disappoints

The British pound has posted considerable losses in the Monday session. In North American trade, GBP/USD is trading at 1.4009, down 0.79% on the day. On the release front, the focus was on the services sectors. British Services PMI slowed to 53.0, missing the estimate of 53.0 points. Later in the day, the UK releases British BRC Retail Sales Monitor. In the US, Non-Manufacturing PMI climbed to 59.9, above the forecast of 56.5 points. This points to strong expansion in the services sector and marked a 3-month high. On Tuesday, the US releases JOLTS Job Openings.

PMI indicators are important gauges of the British economy, and the January reports have all disappointed. Last week, Manufacturing and Construction PMIs slowed in January and missed their estimates. Construction PMI dropped to 50.2, pointing to stagnation in the construction sector. On Monday Services PMI continued to the trend, as the pace of expansion slowed in January. These weaker numbers across the economy are sure to trigger concerns that Brexit is taking its toll on the economy, and the pound briefly dropped below the symbolic 1.40 level earlier in the day.

On Friday, US employment numbers were strong, propelling the dollar to broad gains against major currencies, including the British pound, which dropped 1.1%. Nonfarm payrolls jumped to 200 thousand, beating the estimate of 181 thousand. Wage growth remained steady at 0.3%, edging above the estimate of 0.2%. Will the strong numbers lead to additional interest rate hikes? Minneapolis Fed President Neel Kaskkari said on Friday that the Fed might need to be more aggressive if wages continued to move higher. The Fed is planning to raise rates three times in 2018, but some economists are forecasting four hikes.

GBP/USD Fundamentals

Monday (February 5)

  • 4:30 British Services PMI. Estimate 54.1. Actual 53.0
  • 9:45 US Final Non-Manufacturing PMI. Estimate 53.3. Actual 53.3
  • 10:00 US ISM Non-Manufacturing PMI. Estimate 56.5. Actual 59.9
  • Tentative – US Loan Officer Survey
  • 19:01 British BRC Retail Sales Monitor

Tuesday (February 6)

  • 10:00 US JOLTS Jobs Openings. Estimate 5.95M

*All release times are GMT

*Key events are in bold

GBP/USD for Monday, February 5, 2018

GBP/USD February 5 at 11:50 EDT

Open: 1.4100 High: 1.4151 Low: 1.3987 Close: 1.4004

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3809 1.3901 1.4010 1.4128 1.4271 1.4346

GBP/USD showed little movement in the Asian session. The pair posted considerable losses in European trade and the downward trend continues in the North American session

  • 1.4128 is providing support
  • 1.4271 is the next line of resistance

Current range: 1.4128 to 1.4271

Further levels in both directions:

  • Below: 1.4010, 1.3901, 1.3809 and 1.3744
  • Above: 1.4128, 1.4271 and 1.4346

OANDA’s Open Positions Ratio

In the Monday session, GBP/USD ratio is showing short positions with a majority (56%). 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.