The British pound has punched above the 1.38 level in the Thursday session. GBP/USD is currently trading at 1.3823, up 0.39% on the day.
UK Manufacturing extends slowdown
The UK manufacturing sector continues to show significant expansion, as reflected by a strong Manufacturing PMI reading for August. The PMI report indicated that confidence among manufacturers remains strong. At the same time, there is room for concern, as the PMI has slowed for a third consecutive month, and the August reading of 60.3 marked a 5-month low. The downturn reflects prolonged supply chain issues that have resulted in shortages and disruptions, causing a decrease in output growth. Still, manufacturing remains robust, well above the long-run average of 51.9.
What can we expect from Nonfarm Payrolls, which will be released on Friday? Investors are a bit more cautious after soft US data on Wednesday. The ADP Employment report was way below the consensus, while the ISM manufacturing employment sub-index slipped into contraction territory. Granted, the ADP is not a reliable indicator of NFP, but such a massive miss has understandably raised eyebrows about the strength of the employment market. It will be interesting to see if the consensus of 750 thousand is on target – an overperformance will likely trigger speculation about an imminent Fed taper, while a significant underperformance would likely lead to the Fed delaying a taper until employment data improved. This means that we could see significant movement from the US dollar on Friday.
The markets are keeping an eye on Fed members Raphael Bostic and Mary Daly, who will deliver speeches later in the day. Bostic is a known hawk and recently said it was “reasonable” to commence tapering in October. Day is viewed as more of a centrist, so her remarks could garner more attention. If Day’s speech indicates a move in either direction, we could see a response from the markets.
GBP/USD Technical Analysis
- GBP/USD is testing resistance at 1.3821. Above, there is resistance at 1.3885
- On the downside, 1.3654 is the first line of support. This is followed by support at 1.3551
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