GBP/USD – Pound Edges Lower Despite Strong Construction PMI

GBP/USD continues to have an uneventful week. The pair has edged lower on Wednesday, as it trades at 1.2920 in the North American session.  On the release front, UK Construction PMI improved to 53.1, above the forecast of 52.1 points. In the US, ADP Nonfarm Payrolls dropped to 177 thousand, very close to the forecast of 178 thousand. The ISM Non-Manufacturing PMI improved to 57.5, beating the estimate of 56.1 points. Today’s key event is the Federal Reserve’s policy statement, with no change expected in the benchmark interest rate. On Thursday, the UK publishes Services PMI and Net Lending to Individuals, while the US will release unemployment claims.

Despite all the angst over Brexit, British economic data continues to surprise, as the economy continues to perform well. PMI reports for March, key gauges of economic activity, have been stronger than expected. Construction PMI rose to 53.1 points, marking a 4-month high. Earlier in the week, Manufacturing PMI climbed to its highest level since 2014. At the same time, market concerns are again rising ahead of the first phase of negotiations between Britain and the European Union. The EU has toughened its stance in recent weeks, and there’s no denying the bad blood between the sides, following some testy exchanges between Prime Minister May and EU President Juncker at a frosty meeting this week. If the two sides remain at loggerheads and the negotiations reach an impasse, May has warned that “no deal is better than a bad deal”. However, a ‘hard Brexit’, in which Britain leaves the EU without a comprehensive deal in place, would likely take a toll on the British economy and send the pound to lower levels.

It’s Election Day (again) in France on Sunday, with Emmanuel Macron and Marine Le Pen vying for the next president of France. The euro and European stock markets have been very steady in the second round of the campaign, as opinion polls continue to show a comfortable majority for Macron:

The polling average line looks at the five most recent national polls and takes the median value, ie, the value between the two figures that are higher and two figures that are lower.

Source – BBC

French Election Timeline

May 3 – TV debate between the two remaining candidates

May 5 – [from midnight] Poll blackout

May 7 – Second round of French presidential elections. Last polls close at 19:00 BST / 14:00 EDT, with an exit poll result announced immediately.

May 11 – Official proclamation of the new President.

May 14 – [from midnight] End of Francois Hollande’s mandate

June 11 – First round of legislative elections

June 18 – Second round of legislative elections.

France Prepares for Fiery Presidential Debate

Forget the Fed, France TV Debate to Shift FX

The markets are keeping a close eye on the Federal Reserve, which holds its monthly policy meeting on Wednesday. A rate hike is extremely unlikely this time around, with the CME Group pricing in a hike at just 5%. This means that the markets will be focusing on the rate statement and the views of policymakers concerning economic conditions. The Fed has two key goals which have been achieved, namely full employment and an inflation rate of 2%. One area of concern which policymakers have circled is the Fed’s balance sheet, which stands at $4.5 trillion. The minutes of the March meeting stated that policymakers want to start reducing this figure before the end of 2017, so the markets will be looking for another reference to the balance sheet in the rate statement or the minutes of the meeting. The markets are fairly confident that the Fed will press the rate trigger in June, as the odds for a hike have improved to 63%. If the rate statement is more hawkish than expected, we could see these odds increase.

GBP/USD Fundamentals

Wednesday (May 3)

  • 4:30 British Construction PMI. Estimate 52.1. Actual 53.1
  • 8:15 US ADP Nonfarm Employment Change. Estimate 178K
  • 10:00 US ISM Non-Manufacturing PMI. Estimate 56.1
  • 10:30 US Crude Oil Inventories. Estimate -3.3M. Actual -0.9M
  • 14:00 US FOMC Statement
  • 14:00 US Federal Funds Rate. <1.00%

Thursday (May 4)

  • 4:30 British Services PMI. Estimate 52.1. Actual 53.1
  • 4:30 British Net Lending to Individuals. Estimate 4.5B
  • 8:30 US Unemployment Claims. Estimate 246K

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, May 3, 2017

GBP/USD May 3 at 10:50 EST

Open: 1.2940 High: 1.2948 Low: 1.2883 Close: 1.2919

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2571 1.2706 1.2865 1.2946 1.3058 1.3121
  • GBP/USD was flat in the Asian session and posted losses in European trade. The pair is steady in the North American session
  • 1.2865 is providing support
  • 1.2946 remains a weak resistance line

Further levels in both directions:

  • Below: 1.2865, 1.2706, 1.2571 and 1.2471
  • Above: 1.2946, 1.3058 and 1.3121
  • Current range: 1.2865 to 1.2946

OANDA’s Open Positions Ratio

GBP/USD ratio remains unchanged this week. Currently, short positions have a majority (61%). This is indicative of trader bias towards GBP/USD continuing to lose ground.

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

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.