GBP/USD – Pound Slips as UK Manufacturing PMI Dips

GBP/USD has started the week with losses, as the pair is down 0.68% on the day. Currently, the pair is trading at 1.2940. On the release front, British Manufacturing PMI dropped to 54.3, marking a 3-month low. This was well below the forecast of 56.4. In the US, ISM Manufacturing PMI climbed to 57.8, beating the estimate of 55.0. Later in the day, MPC member Ande Haldane will speak at a BoE conference in London. On Tuesday, the UK releases Construction PMI, which is expected to drop to 55.2.

BoE Governor Mark Carney cancelled his attendance at last year’s ECB forum of central bankers. However, Carney more than made up for his absence this year, as he was one of the stars of the show. The pound soared 2.4% this week, buoyed by Carney’s hawkish comments regarding monetary policy. Carney said that the BoE would have to consider removing monetary stimulus, and the markets jumped on his comments as a possible sign that he was not adamantly opposed to rate hikes in the near future. BoE policymakers have waged a public debate about rate policy, with Carney stating last week that he was opposed to hikes, only to be contradicted by MPC member Ande Haldane, who said he had been close to voting in favor of a rate hike at the June rate meeting. The vote at the meeting was 5-3 in favor of maintaining rates, surprising the markets, which had predicted a 7-1 vote to keep rates at current levels. Although there are renewed fears that Brexit will take a toll on the British economy, inflation is running close to 3%, well above the BoE’s target of 2 percent. A rate increase would help lower inflation, but Carney, who has voiced concerns about Brexit’s negative ramifications since the vote last June, had been solidly against a rate increase. The markets will be paying close attention to Haldane’s presentation later in the day – if Haldane repeats a call for a rate increase, the pound could respond with gains.

In the UK, more and more consumers are taking out loans, and that has the Bank of England worried. With wage growth at weak levels and the pound at low levels, the British consumers have seen their purchasing power reduced, with many resorting to unsecured loans. This has led to calls for the BoE to respond with a rate hike in September, in order to curb borrowing levels. Proponent of a rate hike also point to high inflation, which is running at a 3% clip. The BoE cut rates to 0.25% in August 2016, in response to the stunning Brexit vote, which the BoE warned would take a heavy toll on the economy. Those dire warnings are yet to materialize, and Carney faced heavy criticism over the bank’s negative forecast. With more BoE policymakers calling for a rate hike, Carney may have to acquiesce and press the rate trigger before the end of the year.

GBP/USD Fundamentals

Monday (July 3)

• 4:30 British Manufacturing PMI. Estimate 56.4. Actual 54.3
• 9:45 US Final Manufacturing PMI. Estimate 52.1. Actual 52.0
• 10:00 US ISM Manufacturing PMI. Estimate 55.0. Actual 57.8
• 10:00 ISM Construction Spending. Estimate 0.3%. Actual 0.0%
• 10:00 US ISM Manufacturing PMI. Estimate 58.5. Actual 55.0
• All Day – US Total Vehicle Sales. Actual 16.5M
• 13:30 British MPC Member Ande Haldane Speaks

Tuesday (July 4)

• 4:30 British Construction PMI. Estimate 55.2
• 19:01 British BRC Shop Price Index

*All release times are EDT

*Key events are in bold

GBP/USD for Monday, July 3, 2017

GBP/USD July 3 at 11:55 EDT

Open: 1.3026 High: 1.3036 Low: 1.2932 Close: 1.2936

GBP/USD Technical

• GBP/USD edged higher in the Asian session. The pair was flat in European trade and has posted small gains in North American session
• 1.2946 has switched to support after gains by GBP/USD on Thursday
• 1.3058 is the next line of resistance

Further levels in both directions:

• Below: 1.2946, 1.2865, 1,.2706 and 1.2571
• Above: 1.3058, 1.3121 and 1.3279
• Current range: 1.2946 to 1.3058

OANDA’s Open Positions Ratio

In the Monday session, GBP/USD ratio is showing short positions with a majority (63%). This is indicative of trader bias towards GBP/USD continuing to move downwards.

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.