- UK Construction PMI declines
The British pound has ticked higher on Thursday. In the North American session, GBP/USD is trading at 1.2149, up 0.09%.
UK Construction PMI declines
The UK Construction PMI fell to 45.0 in September, down significantly from 50.8 in August and below the consensus estimate of 49.9. This was the first decline in three months and the steepest decline since May 2020. The survey found that high mortgage rates and weak demand for house purchases had a negative impact on the construction industry. As well, business expectations fell to their lowest level this year.
The Construction PMI release is further evidence that the Bank of England’s sharp tightening cycle has cooled down the economy. This week’s Services and Manufacturing PMIs both pointed to contraction in September, with readings below the 50 level. The British pound didn’t react to the Construction PMI release, but the pound continues to fall toward the symbolic 1.20 line and the currency will likely face further headwinds if upcoming releases remain soft.
As inflation continues to ease, many major central banks are close to or at the end of their rate-tightening cycle. The Federal Reserve, Bank of England and the ECB were all late to the rate-hike party and don’t want to prematurely declare that rate hikes are over. Inflation remains well above target for all three central banks and stating that rate hikes remain on the table means that policy makers can raise rates if needed without losing credibility.
The BoE paused in September and another hike at the November meeting is a strong possibility, barring a nasty inflation surprise ahead of the meeting. The BoE, which still has its hands full with inflation, says that rate cuts remain a long way off, but that could change if economic growth continues to weaken and inflation falls sharply.
- GBP/USD tested support earlier at 1.2120. The next support level is 1.2035
- There is resistance at 1.2196 and 1.2256
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