GBP/USD – Pound Shrugs Off Soft UK Construction PMI, BoE Rate Decision Looms

GBP/USD has inched higher in Wednesday trade. In the North American session, the pair is trading at 1.3230, up 0.18% on the day. On the release front, UK Construction PMI slowed to 51.9, well off the forecast of 54.3 points. In the US, ADP Nonfarm Employment Change rebounded with a reading of 178 thousand, but this was short of the forecast of 187 thousand. Thursday will be busy, as the UK releases Services PMI and the BoE will publish the benchmark interest rate and the inflation report. The US releases two key events – unemployment claims and ISM Non-Manufacturing PMI.

The pound continues to trade at high levels, and on Wednesday, GBP/USD touched a high of 1.3246, its highest level since September 2016. The week started off positively, as Manufacturing PMI in July improved to 55.1, beating the estimate of 54.4 points. Construction PMI could not keep pace, slowing to 51.9, its weakest reading since August 2016. The indicator reflects weakness in the construction industry, as commercial building and housing activity softened in July. With investors already jittery about what toll Brexit will take on the economy, weak numbers could push the pound to lower levels.

The US dollar has softened against its rivals, and even a strong gain from US Advance GDP last week failed to stem the greenback’s slide. The first GDP report for the second quarter came in at impressive 2.6%, beating the estimate of 2.5%. This strong expansion should put to rest concerns of a second straight quarter of weak growth – Final GDP came in at just 1.4%. Investors remain concerned that low inflation in the US could mean that the Fed will balk and not raise interest rates in December, despite all but promising to increase rates three times in 2017. In June, Fed Chair Janet Yellen dismissed low inflation as “transient”, but she has since changed her tune, as economists remain at a loss to explain why a red-hot economy has not translated into stronger wage growth, and hence higher inflation. The markets are skeptical about a December hike, with the odds at just 42%, according to the CME Group.

USD Finds Some Legs, But….

GBP/USD Fundamentals

Wednesday (August 2)

  • 4:30 British Construction PMI. Estimate 54.3. Actual 51.9
  • 8:15 US ADP Nonfarm Employment Change. Estimate 187K. Actual 178K
  • 10:30 US Crude Oil Inventories. Estimate -3.2M. Actual -1.5M

Thursday (August 3)

  • 4:30 British Services PMI. Estimate 53.6
  • 7:00 BoE Inflation Report
  • 7:00 MPC Official Bank Rate Votes. Estimate 2-0-6
  • 7:00 BoE Monetary Policy Summary
  • 7:00 BoE Official Bank Rate. Estimate 0.25%
  • 7:00 BoE Asset Purchase Facility. Estimate 435B
  • 7:00 MPC Asset Purchase Facility Votes. Estimate 0-0-8
  • 7:30 BoE Governor Mark Carney Speaks
  • 8:30 US Unemployment Claims. Estimate 242K
  • 10:00 US ISM Non-Manufacturing PMI. Estimate 56.9

*All release times are EDT

*Key events are in bold

GBP/USD for Wednesday, August 2, 2017

GBP/USD August 2 at 11:40 EDT

Open: 1.3205 High: 1.3246 Low: 1.3191 Close: 1.3230

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2946 1.3058 1.3121 1.3238 1.3347 1.3480
  • GBP/USD showed little movement in the Asian session. The pair posted ticked higher in the European session and is steady in North American trade
  • 1.3121 is providing support
  • 1.3238 is the next resistance line

Further levels in both directions:

  • Below: 1.3121, 1.3058, 1.2946 and 1.2865
  • Above: 1.3238, 1.3347 and 1.3480
  • Current range: 1.3121 to 1.3238

OANDA’s Open Positions Ratio

In the Wednesday session, GBP/USD ratio is showing long positions with a majority (57%). This is indicative of trader bias towards GBP/USD continuing to post gains.

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 and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.