GBP/USD – Pound Stumbles to 4-Month Low as Manufacturing PMI Slips

The US dollar has steamrolled the British pound in the Tuesday session. In North American trade, GBP/USD is trading at 1.3599, down 1.18% on the day. On the release front, British Manufacturing PMI fell to 53.9, well below the estimate of 54.8 points. Consumer lending dropped to GBP 4.2 billion, missing the estimate of GBP 4.9 billion. In the US, the ISM Manufacturing PMI also disappointed, dropping to 57.3 points. This was short of the forecast of 58.4 points. On Wednesday, Britain releases Construction PMI. Market attention will shift to US employment indicators in the latter part of the week, starting with ADP Nonfarm Employment Change. As well, the Federal Reserve will release a rate statement.

The pound continues to struggle as the currency has fallen to its lowest level since the first week in January. The pound plunged on Tuesday, after a weak reading from Manufacturing PMI. The indicator fell to 53.9, marking a fifth consecutive drop. This was its lowest level since November 2016. Investors have not taken kindly to soft numbers, as the pound also recorded sharp losses on Friday, after the release of British Preliminary GDP. This first estimate of GDP posted a negligible gain of 0.1%, missing the estimate of 0.3%. The poor performance of the economy in the first quarter has dampened expectations that the BoE will raise rates at next week’s rate meeting, with the odds of a hike plunging to 20%, compared to 90% at the beginning of April. Most analysts expect the BoE to delay a rate hike until the second half of the year, with August or November being the most likely months for a rate hike. This sentiment sent the pound lower on Friday and the currency declined 1.6% last week. Currently, GDP/USD is trading at its lowest level since the end of February.

All eyes will be on the Federal Reserve on Wednesday when it concludes a 2-day policy meeting. The markets are expecting the Fed to maintain the benchmark rate at a range between 1.50% and 1.75%, and analysts will be keeping a close eye on the rate statement – a hawkish statement could propel the US dollar to higher levels. There is growing sentiment that the Federal Reserve will raise interest rates four times this year, although Fed policymakers have not changed their forecast of three increases in 2018. One scenario envisions the Fed raising rates once each quarter until the economy shows signs of slowing down. If inflation continues to move higher and economic conditions remain strong, the dollar should continue to shine against its major rivals.

Shaky Shaky

Dollar Bulls Lack Conviction

GBP/USD Fundamentals

Tuesday (May 1)

• 4:30 British Manufacturing PMI. Estimate 54.8. Actual 53.9
• 4:30 British Net Lending to Individuals. Estimate 4.9B. Actual 4.2B
• 4:30 British M4 Money Supply. Estimate 0.2%. Actual -1.4%
• 4:30 British Mortgage Approvals. Estimate 63K. Actual 63K
• 9:45 US Final Manufacturing PMI. Estimate 56.5. Actual 56.5
• 10:00 US ISM Manufacturing PMI. Estimate 58.4. Actual 57.3
• 10:00 US Construction Spending. Estimate 0.5%. Actual -1.7%
• 10:00 US ISM Manufacturing Prices. Estimate 78.3. Actual 79.3
• All Day – US Total Vehicle Sales. Estimate 17.1M

Wednesday (May 2)

• 4:30 British Construction PMI. Estimate 50.5
• 8:15 US ADP Nonfarm Employment Change. Estimate 200K
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <1.75%

*All release times are DST

*Key events are in bold

GBP/USD for Tuesday, May 1, 2018

GBP/USD May 1 at 11:15 DST

Open: 1.3763 High: 1.3773 Low: 1.3589 Close: 1.3599

GBP/USD Technical

GBP/USD continues to break through support levels. The pair inched lower in the Asian session and posted sharp losses in European trade. GBP/USD continues to head lower in the North American session

• 1.3494 is providing support
• 1.3613 has switched to a resistance role following sharp losses by GBP/USD
• Current range: 1.3494 to 1.3613

Further levels in both directions:

• Below: 1.3494, 1.3402 and 1.3301
• Above: 1.3613, 1.3712, 1.3796 and 1.3901

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Tuesday session. Currently, long positions have a majority (54%), indicative of trader bias towards GBP/USD reversing directions and moving upwards.

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.