GBP/USD – Pound Drops after Lukewarm UK Construction PMI

With the UK economy sputtering and market confidence rather low, it doesn’t take much for the British pound to lose ground, and this was again the case on Tuesday. Construction PMI missed its estimate and this helped push the struggling pound down to the mid-1.51 line. GBP/USD has not dropped to these levels since late May. The pound has now dropped about six cents since mid-June. Will the downward trend continue?

 The BOE will be setting its key interest rate and asset purchase levels on Thursday, and when the Bank of England speaks, the markets listen. The markets will be closely attuned as incoming governor Mark Carney presides over his first policy meeting at the central bank. Carney, who took over as head of the BOE on July 1, headed the Bank of Canada for five years, and is widely credited for steering Canada through the global financial crisis several years ago. Carney will be facing a lot of pressure to provide an effective monetary policy which will help right a sputtering UK economy. On just his second day of the job, the influential British Chambers of Commerce published an open letter calling on Carney to boost lending in order to revive the economy.

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.

Global growth has been sputtering for some time, and there was more bad news on Friday, as an HSBC report downgraded its forecast for global growth. Global GDP was cut from 2.8% to 2.0% in 2013, and from 3.1% to 2.6% in 2014. In its report, HSBC said that it had lowered its forecast due to the US Federal Reserve decision to cut QE, as well as a sharp slowdown in China and other emerging countries such as India and Brazil. The report also revised China’s GDP from 8.2% to 7.4% for 2013 and from 8.4% to 7.4% for next year.  Weaker global growth will be bad news for countries which heavily depend on exports, such as Japan, Canada and Australia, and could have a negative impact on these countries’ currencies.

GBP/USD for Tuesday, July 2, 2013

GBP/USD July 2 at 15:20 GMT

GBP/USD 1.5169 H: 1.5238 L: 1.5137

GBP/USD Technical

GBP/USD has resumed its southern journey, and is struggling in the mid-1.51 range. On the downside, there is weak support at 1.5111, and this line could face pressure if the pound continues to weaken. There is followed by a support level at the psychologically significant level of 1.5000. This line has remained intact since mid-March. On the upside, the pair faces resistance at 1.5203. This line saw action in the European session, and cannot be considered safe. The next resistance line is at 1.5309. This line has strengthened as the pair trades at higher levels.

• Current range: 1.5111 to 1.5203

Further levels in both directions:

• Below: 1.5111, 1.5000, 1.4896 and 1.4781
• Above: 1.5203, 1.5309, 1.5432, 1.5557 and 1.5700 

OANDA’s Open Positions Ratio

GBP/USD ratio has shifted direction and is pointing to movement towards short positions in Tuesday trading. This is consistent with what we are seeing from the pair, as the pound has posted losses against the dollar. The ratio has a slight majority of long open positions, indicating a slight bias towards the pound reversing direction and moving upwards.

GBP/USD Fundamentals

• 8:30 British Construction PMI. Estimate 51.3 points. Actual 51.0 points
• 9:00 Bank of England MPC Member Paul Tucker Speaks
• 9:38 10-year British Bond Auction. Actual 2.58%
• 14:00 US Factory Orders. Estimate 2.0%. Actual 2.1%
• 14:00 US IBD/TIPP Economic Optimism. Estimate 49.3 points. Actual 47.1 points
• All Day – US Total Vehicle Sales. Estimate 15.3M
• 16:30 US FOMC Member William Dudley Speaks
• 21:45 US FOMC Member Jerome Powell Speaks
• 23:01  British BRC Shop Price Index

*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.