GBP/USD – Pound Steady Despite Soft Manufacturing PMI

The British pound has posted small losses at the start of the week. In Monday’s North American session, GBP/USD is trading at the 1.32 line. On the release front, British Manufacturing PMI dipped to 48.2 points, below the estimate of 49.1. Later in the day, the US will release ISM Manufacturing PMI, a key indicator. Little change is expected in the July reading, with an estimate of 53.1 points. On Tuesday, the UK will publish Construction PMI, with the markets bracing for a weak reading of 44.2 points.

British PMI reports are important gauges of economic activity, and the week kicked off on a sour note. Manufacturing PMI came in at 48.2 points in July, following the previous release which also indicated contraction in the manufacturing sector. There are growing worries that third quarter data such as PMI reports will point to a weakening British economy, due to the fallout from the Brexit vote. Construction and Services PMIs are also expected to contract, and this could weaken the pound. The markets will also be keeping a close eye on the BoE, which is widely expected to cut interest rates when it meets on Thursday. The BoE surprised the markets in July when it maintained rates at 0.50%, but faces losing credibility if it stays on the sidelines again. The bank hasn’t lowered rates since 2009, so such a dramatic move could push the pound to lower levels.

The US dollar was broadly lower on Friday, following a surprisingly soft US GDP report. The pound posted considerable gains, climbing back above the 1.32 line. US Preliminary GDP for the second quarter was projected at 2.6%, but posted a much smaller gain of 1.6%. The soft reading not only pushed the dollar lower, but has dampened enthusiasm regarding a rate hike by the Fed, which last week stayed on the sidelines yet again. On Monday, FOMC William Dudley, a close ally of Janet Yellen, said that the Brexit fallout posed a risk to the US economy and urged the Fed to proceed with caution before raising interest rates. The US will release wage growth and nonfarm payrolls later in the week, and these key employment numbers will be carefully monitored by the Fed as it mulls over a possible rate hike. If these releases do not meet expectations, the likelihood a move in September will sharply decrease.

GBP/USD Fundamentals

Sunday (July 31)

• 21:15 US FOMC Member William Dudley Speaks

Monday (August 1)

• 4:30 British Manufacturing PMI. Estimate 49.1. Actual 48.2
• 9:45 US Final Manufacturing PMI. Estimate 52.9
• 10:00 ISM Manufacturing PMI. Estimate 53.1
• 10:00 US Construction Spending. Estimate 0.5%
• 10:00 ISM Manufacturing Prices. Estimate 61.0
• Tentative – US Loan Officer Survey

Upcoming Key Events

Tuesday (August 2)

• 4:30 British Construction PMI. Estimate 44.2

*All release times are EDT

GBP/USD for Monday, August 1, 2016

GBP/USD August 1 at 8:50 GMT

Open: 1.3216 High: 1.3272 Low: 1.3160 Close: 1.3182

GBP/USD Technical

• GBP/USD posted gains in the Asian session. The pair reversed directions in the European session and posted sharp losses. The pair is unchanged early in North American trade
• 1.3142 is providing support
• 1.3219 was tested in resistance earlier and is under pressure

Further levels in both directions:

• Below: 1.3142, 1.3064, 1.2938 and 1.2778
• Above: 1.3219, 1.3349 and 1.3513
• Current range: 1.3142 to 1.3219

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged on Monday, consistent with the lack of movement from GBP/USD. Long positions have a majority (55%), indicative of trader bias towards GBP/USD breaking out and moving higher.

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.