GBP/USD – Pound Dips as Construction PMI Misses Expectations

The British pound has posted considerable losses in the Wednesday, erasing the gains seen in the Tuesday session. In Wednesday’s North American trade, GBP/USD is trading at 1.3520, down 0.52% on the day. In economic news, British Construction PMI slowed to 52.2, missing the estimate of 52.8 points. In the US, ISM Manufacturing PMI improved to 59.7, beating the forecast of 58.3 points. This marked a 3-month high. Today’s key event is the release of the Fed minutes from the December meeting. On Thursday, the UK releases Services PMI. Over in the US, the focus will be on employment numbers, with the release of ADP Nonfarm payrolls and unemployment claims. On Friday, we’ll get a look at wage growth and US Nonfarm Payrolls.

British PMIs have not had a positive week. Construction PMI missed expectations, after Manufacturing PMI also disappointed on Tuesday. At the same time, the indicators continue to point to expansion in the manufacturing and construction sectors, with readings above the 50-level. The manufacturing sector has received a boost from strong global demand for British exports. As well, the weak pound has also made British products less expensive.

The Federal Reserve takes center stage later on Wednesday, with the release of the minutes of the December policy meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25% and 1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground. The economy is expanding at an impressive clip of above 3 percent. If this pace continues, the Fed could raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Despite the rosy economic conditions, inflation has been chronically soft, well below the Fed target of 2 percent. Outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will push up wages and trigger higher inflation, but this is yet to happen.

GBP/USD Fundamentals

Wednesday (January 3)

• 4:30 British Construction PMI. Estimate 52.8. Actual 52.2
• 10:00 US ISM Manufacturing PMI. Estimate 58.1. Actual 59.7
• 10:00 US Construction Spending. Estimate 0.6%. Actual 0.8%
• 10:00 US ISM Manufacturing Prices. Estimate 64.8. Actual 69.0
• All Day – US Total Vehicle Sales. Estimate 17.5M
• 14:00 US FOMC Meeting Minutes

Thursday (January 4)

• 4:30 British Services PMI. Estimate 54.1
• 8:15 US ADP Nonfarm Employment Change. Estimate 191K
• 8:30 US Unemployment Claims. Estimate 241K
• 14:00 US FOMC Meeting Minutes

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, January 3, 2018

GBP/USD January 3 at 11:55 EDT

Open: 1.3591 High: 1.3613 Low: 1.3494 Close: 1.3520

GBP/USD Technical

GBP/USD showed little movement in the Asian session. The pair posted losses in the European session and the downward movement has continued in North American trade

• 1.3503 was tested earlier in support as GBP/USD has posted losses on Wednesday
• 1.3655 is the next resistance line

Current range: 1.3503 to 1.3655

Further levels in both directions:

• Below: 1.3503, 1.3402, 1.3221 and 1.3186
• Above: 1.3655, 1.3809 and 1.3901

OANDA’s Open Positions Ratio

GBP/USD ratio is showing movement towards long positions. Currently, short positions have a majority (56%), indicative of trader bias towards GBP/USD continuing to move lower.

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.