GBP/USD – Pound Rises After Superb Manufacturing PMI

The pound posted gains against the US dollar on Monday, courtesy of an outstanding British Manufacturing PMI. The key index soared to its highest level in close to twenty years, as British PMIs continue to rise at an impressive clip. Later on Monday, the UK will release the BRC Sales Monitor. In the US, the markets are closed for the Labor Day holiday, so there are no US releases.

Another British PMI, another excellent performance. This has been the recent trend, and British Manufacturing PMI did not disappoint on Monday. The index jumped from 54.6 points in July to 57.2 points in August. This easily beat the estimate of 55.2 points. This reading is the highest level we’ve seen the index since 1994. The markets have high expectations from Construction PMI, which will be released on Tuesday. A strong release could boost the pound against the dollar.

The markets displayed some volatility last week in anticipation of an expected US military strike against Syria, after a chemical attack in the war-torn country killed hundreds However, the attempt by the US to secure a coalition ran into trouble, and President Obama said on the weekend that he will seek Congressional approval before taking any action against Syria. With Congress in recess until September 9th, a military strike could be delayed until mid-September or even later. Meanwhile, the markets have now settled down as we begin the new trading week.

In the UK, the financial markets were all ears late last week as BOE head Mark Carney made his first public appearance since taking over the position in July. Carney said that the BOE is prepared to add stimulus if it is needed, in order to boost economic growth. As the new head of the BOE, Carney has introduced forward guidance, in which the BOE has communicated that it plans to keep the benchmark interest rate at a record low of 0.50% until 2016 at the earliest. Carney said that raising interest rates too early could choke off the recovery. However, many investors believe the BOE could raise rates much sooner, given the improving UK economy and the strong likelihood of QE tapering by the US Federal Reserve. The markets have priced in an interest rate hike for early 2015 and it will be interesting to see how Carney responds to this move.

When will the Federal Reserve taper QE? The Federal Reserve has not given any hints, and recent statements from Fed policymakers underscore divisions regarding the timing of such a move. What is clear is that stronger US numbers will increase the likelihood of the Fed acting sooner rather than later. This means that US releases, especially employment data, will be under the market microscope and traders should be prepared for the Fed to begin tapering at any time, which will likely bolster the US dollar.

GBP/USD for Monday, September 2, 2013

GBP/USD September 2 at 15:10 GMT

GBP/USD 1.5560 H: 1.5593 L: 1.5518

GBP/USD Technical

• GBP/USD has posted gains in Monday trading. The pair touched a high of 1.5593 early in the European session but has since retracted.
• The pair is facing resistance at 1.5645. This is followed by a resistance line at 1.5756. This line has remained intact since February.
• On the downside, the GBP/USD is receiving support at 1.5527. This is not a strong line and could face pressure if the pair reverses direction. Next, there is a support line at 1.5432. This line has strengthened as the pair trades at higher levels.
• Current range: 1.5527 to 1.5645

Further levels in both directions:

• Below: 1.5527, 1.5432, 1.5309, 1.5203 and 1.5127.
• Above: 1.5645, 1.5756, 1.5877 and 1.6000

OANDA’s Open Positions Ratio

The GBP/USD continues to show movement towards long positions in Monday trading. This has been the trend seen early last week. This is reflected in the current movement of the pair, as the pound has posted gains against the US dollar. The ratio continues to have a solid majority of short positions, which reflects a strong bias in favor of the US dollar reversing direction and posting gains against the pound.

GBP/USD has picked up some ground after a very strong Manufacturing PMI. We’re unlikely to see any significant movement by the pair, as the US markets are closed on Monday.

GBP/USD Fundamentals

• 8:30 British Manufacturing PMI. Estimate 55.2 points. Actual 57.2 points.
• 23:55 British BRC Retail Sales Monitor.

*Key releases are highlighted in bold

*All release times are GMT

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