GBP/USD – Steady as British Manufacturing PMI Rises

The British pound has posted very slight gains on Monday, which marks the first time in a week that the currency has not lost ground to the US dollar. Early in Monday’s North American session, GBP/USD is trading in the low-1.52 range. In economic releases, there was excellent news from British Manufacturing PMI, which hit its highest level in two years. However, Net Lending to Individuals failed to keep pace, and came in well below the estimate. In the US, today’s highlight is ISM Manufacturing PMI. The markets are hoping that the key index will bounce back from a weak release last month and climb above the 50-point level, which indicates expansion.

Last month, British PMIs from the various sectors looked solid, and at the time, this bolstered the pound. Will we see a repeat in July? Perhaps yes, as Manufacturing PMI looked sharp on Monday. The index jumped from 51.3 points to 52.5 points, beating the estimate of 51.3 points. This was the PMI’s best showing since May 2011. The news was not as bright from Net Lending to Individuals, which dropped from GBP 1.4 billion to GBP 1.0 billion. The estimate stood at GBP 1.4 billion.

There was no good news for the British currency from domestic developments, as U.K. Chancellor of the Exchequer George Osborne outlined deep spending cuts that the government will make starting in 2015 and which will last till 2018. The government plans to cut some GBP 11.5 billion from government ministries, as the austerity program continues for a sixth straight year. Osborne said he was forced to take drastic action due to a weak British economy and lower than expected tax revenue. The new cuts are sure to be unpopular with the public, and the opposition Labor Party has wasted no time in criticizing the spending cuts and blaming the government of mismanaging the economy. The continuing austerity measures will, of course, may it more difficult for the economy to grow, but the government is banking on the economy improving once it can get its fiscal house in order.

In sharp contrast to what we are seeing in the UK, things look much brighter in the US . Last week’s US releases were mostly solid, helping to boost market confidence as well as the US dollar. Manufacturing, consumer confidence and housing numbers all beat their estimates. Unemployment Claims bounced back after a poor release the week before, and almost matched the estimate. Although GDP fell short of the estimate, the dollar remained strong, as the indicator pointed to respectable growth by the US economy. These solid numbers are particularly encouraging as they come from a wide range of economic sectors. Further strong numbers out of the US could be an indication that the recovery is gaining steam. 

GBP/USD for Monday, July 1, 2013

GBP/USD July 1 at 13:30 GMT

GBP/USD 1.5225 H: 1.5248 L: 1.5184

GBP/USD Technical

GBP/USD is steady in Monday trading, and the proximate support and resistance lines remain in place (S1 and R1 above). On the downside, there is support at 1.5203, but this remains a weak line, and was briefly breached in the European session. There is stronger support at 1.5111. This line has remained intact since mid-March. On the upside, we continue to see resistance at 1.5309. This is followed by a resistance line at 1.5432.

• Current range: 1.5203 to 1.5309

Further levels in both directions:

• Below: 1.5203, 1.5111, 1.5000 and 1.4896.
• Above: 1.5309, 1.5432, 1.5557, 1.5700, 1.5800, and 1.5869

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to movement towards long positions in Monday trading. This is consistent with what we are seeing from the pair, as the pound has posted modest gains against the dollar at the start of the week. The ratio has a slight majority of long open positions, indicating a slight bias towards the pound continuing to move upwards.

GBP/USD Fundamentals

• 8:30 British Manufacturing PMI. Estimate 51.3 points. Actual 52.5 points.
• 8:30 British Net Lending to Individuals. Estimate 1.4B. Actual 1.0B.
• 8:30 British M4 Money Supply. Estimate 0.0%. Actual -0.1%.
• 8:30 British Mortgage Approvals. Estimate 56K. Actual 58K.
• 13:00 US Final Manufacturing PMI. Estimate 52.4 points. Actual 51.9 points.
• 14:00 US ISM Manufacturing PMI. Estimate 50.6 points.
• 14:00 US ISM Manufacturing Prices. Estimate 50.5 points.
• 14:00 US Construction Spending. Estimate 0.6%.

*Key releases are highlighted in bold

*All release times are GMT

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.